The manufacturing industry, which has traditionally been conservative about offering hefty salary hikes and has lost out to IT and business process outsourcing in the bargain, is returning with a vengeance, according to the latest survey by Watson Wyatt, a leading human resources consultancy.

This year, the manufacturing and engineering industry is expected to offer salary increases of 16 per cent, a percentage point more than the 15 per cent increase expected from IT, ITeS and BPO, 13.5 per cent from insurance and roughly the same as the IT industry.

Even the conservative pharmaceutical industry -- which has been losing people, especially medical representatives, to retail -- said it would increase salaries 15.7 per cent in 2008.

Last year, manufacturing salaries went up only 12.5 per cent and pharma only 12 per cent.

"Manufacturing growth has matched overall economic growth and the industry has realised that it cannot lose people to other high-growth industries. That's why it is paying more," said Anita Belani, country head, human capital group of Watson Wyatt Worldwide.

The survey was based on interviews with over 146 companies in India, including multinational and Indian business houses, and was also based on compensation budgets fixed by companies for this year.

Overall, the survey shows that salary increases across industries at 14.8 per cent are roughly the same as last year (14.5 per cent).

The study also throws up some interesting new trends in terms of talent retention.

For instance, cash retention or deferred bonus has overtaken stock options as a popular means of retaining employees.

Second, signing bonuses to new employees have caught on, percolating to even clerical and supervisory staff.

Companies have also realised that overseas assignments are a strong employee retention tool.

Belani said the imposition of the fringe benefit tax has prompted companies to prefer cash options to stock options to retain talent.

The attrition rate continues to be a worry through it is not expected to worsen this year. Across industries it will be around 16.3 per cent, almost the same as last year's 16.5 per cent.