The Indian economy is experiencing unprecedented growth. Apart from the famed Indian entrepreneurial spirit, other catalysts include easy access to capital and reforms in our economic structure. But if we draw an analogy from supply chain processes, the debottlenecking of an area shifts the bottleneck to another. The human capital has the potential of becoming the next bottleneck in our dream run, constraining our pace of growth.

However, human capital development process has a time lag vis-à-vis the economic growth rate which creates a crunch in the intervening period. New institutions of business and technical studies fill this void but the quality of output of some of these institutions remains questionable. Some statistics, though cynically perhaps, say that only 20 per cent of India's engineering graduates are employable. Thus, the demand-supply mismatch has led to higher attrition and often unprepared or underprepared professionals being assigned responsibilities ahead of their natural development of leadership competencies.

The tradition of general education and generalist civil service in India kept specialisations underdeveloped and often unrewarded. However, liberalisation, sophisticated markets, customers and competition have driven the need for micro-specialists. I have been arguing with institutions conferring degrees or diplomas in HR management to allow more specialisation in areas such as compensation and benefits or in the area of training.

With the growth of the service sector, the traditional skilled pool available to the manufacturing sector has been shrinking. Large numbers of production and mining engineers are seeking careers with IT companies. The trend of engineers opting for management degrees depletes available talent in the fields of technology and engineering — the backbone of manufacturing.

Moreover, extractive industries and units associated with them are usually located in remote areas. With a spurt in opportunities in urban areas, there is a dearth of skilled workers in rural units as most of them are reluctant to stay and work in a remote area. In response to these challenges, organisations are casting their nets far relying on multiple sources and are experimenting with new retention and hiring strategies. HR practices in India are also increasingly getting benchmarked with global trends, thanks to foreign investment which has brought global practices with it. Sign-on bonuses, large stock options, flexible plans, remote working and other such incentives are used as tools of attracting and retaining talent. New companies look at existing companies as ready-made sources of talent pool and try to poach on them.

The pressure of finding talent coupled with unavailability of specialists are responsible for irrational exuberance of salaries. Compensation specialists are on the forefront of innovation. Newspaper headlines on compensation are also impacting traditional employee preferences. Public sector units and the government, once aspirational destinations, are experiencing the heat of talent shortage as employees join the private sector. This has inspired even UTI and SBI to flirt with the employee stock option plans. Internal equity, peer parity and other old fashioned ideas have retreated to the background and individual pricing of talent seems to be the order of the day.

Hopefully, with greater integration of the Indian and the global economies, we will see salary raises coming down to western levels of compensation growth which usually have been lower than 5 per cent.

With massive salaries being paid to employees along with long-term incentive plans, aligning people's performance with business goals will be the key driver for sustainability. I hope, we do not see a patch of turbulent economic period wherein we are confronted with down-sizing or pay cuts. Human capital is going to be a critical element in planning business and market strategies. Possibly, we need to experiment with more tools of human engagement rather than compensation alone.

Dr. Santrupt Misra received the prestigious National Institute of Personnel Management (NIPM) Ratna Award in February 2008. The award was conferred on Dr. Misra for his stellar contribution in the field of Human Resource Development and Management.