Policymakers are concerned that low single-digit income growth in the corporate sector, despite four times (four times) the growth in profits over the last four years, is one of the reasons behind the slowing of demand, as evidenced by the sharp decline in the economic growth rate to 5.4% in July-September of this year.
A report prepared for the government by industry chamber FICCI and Quess Corp Ltd, a tech-enabled staffing firm with over 3,000 clients, has sparked discussions in corporate boardrooms, key economic ministries, and between the two. It revealed that the compound annual wage growth rate across six sectors between 2019 and 2023 ranged between 0.8 percent for engineering, manufacturing, process, and infrastructure (EMPI) companies and 5.4 percent for fast-moving consumer goods (FMCG) firms.
A weak or negative increase in real incomes, or wage growth after accounting for inflation or price increases, has made things worse for workers, even in the formal industries. The retail inflation rate increased 4.8%, 6.2%, 5.5%, 6.7%, and 5.4% throughout the five years from 2019–20 to 2023–24, correspondingly. In at least a few of his speeches at business events, Chief Economic Advisor V Anantha Nageswaran mentioned the FICCI-Quess study and recommended that India Inc. examine its own internal operations and likely take action.
Government sources claimed that one of the causes of the muted consumption, particularly in cities, was low income levels. “Post-Covid, consumption rose with pent-up demand, but the slower wage growth has brought to the fore concerns about a full economic recovery to the pre-Covid phase,” a source in the government told news agency.
According to the newspaper’s access to the FICCI-Quess study results, which are not publicly available, the EMPI sector had the lowest compound annual growth rate (CAGR) for wages from 2019 to 2023, at 0.8%. At 5.4%, it was the highest for the FMCG industry. Wages increased by 2.8% for BFSI (banking, financial services, insurance), 3.7% for retail, 4% for IT, and 4.2% for logistics between 2019 and 2023. The FMCG sector had the lowest average salary in 2023, at Rs 19,023, while the IT sector had the highest, at Rs 49,076.
Nageswaran stated at Assocham’s Bharat @100 Summit on December 5 that there needs to be a greater balance between the portion of revenue that goes to workers as wages and the portion that goes to capital in the form of profits. “Without that, there will not be adequate demand in the economy for corporates’ own products to be purchased. In other words, not paying workers, or not hiring workers enough, will end up being actually self-destructive or harmful for the corporate sector itself,” he had said. According to Nageswaran, corporate profits actually reached a 15-year high in March 2024.
“The previous high was 5.2 per cent of GDP, profit after tax, in March 2008. That was a boom era. But to be able to get to 4.8 per cent in 2024 after Covid and in a very difficult global environment… whereas 2008 was an extremely friendlier global growth environment. This means that profitability growth has been absolutely impressive. The growth was 4x in the last four years, four times growth in profits of the Indian corporate sector,” he said.
The staff cost of Indian listed companies, whether it is IT firms or general, has been coming down, Nageswaran said. “In other words, the growth in compensation to employees has become weaker and weaker. And if you take out managerial compensation, the decline will look even more acute,” he said.
The survey’s average gross wage is determined by dividing the total number of employees in a given sector by the cumulative compensation of all employees in all job roles. The poll pointed out that because salaries differ according to job roles, with some earning more than others, wage increase is indicative rather than decisive.
It has been discovered that the government has discussed the issue of low pay internally on multiple occasions.
To put things in perspective, an analyst at India Inc. who is aware of the government’s deliberations stated that inequality in India is certain to rise at this macroeconomic stage of growth.
“The pandemic has accentuated the problem; we are 7 per cent behind the pre-pandemic growth path. And you cannot overlook the fact that workforce addition in India is very strong. So our economy is one year behind where it should be, and we have one extra year of labour,” said the analyst, who did not wish to be named.
“Given that there is a surplus of labour vis-à-vis capital, the bargaining power of labour is less. Slow wages growth is frankly inevitable,” said the analyst. But should Corporate India do something about it? “In this macro environment, this is the outcome…,” the analyst said.
Some other economists the news agency spoke with said that the slow wage growth is also translating into slower growth in labour productivity and low-quality jobs in India. “The slow wage growth is a recurring phenomenon worldwide with wage growth as a share of GDP persistently declining in the last decade in countries globally including India. Thus, the long-standing assumptions about downward nominal rigidity of nominal wages prior to 1990s when organised labour were much stronger is clearly not in vogue now. Employees now cannot resist cuts in wages and are willing to work even at a lower rate explaining much of the slower growth in labour productivity. This is also part of India’s problem of producing low quality jobs. India actually has an underemployment problem and we must produce good quality jobs to ensure consumption is more broad-based,” said Soumya Kanti Ghosh, Member of the 16th Finance Commission and Group Chief Economic Advisor, State Bank of India.
Some experts pointed out that the solution lies in raising labour productivity, which in turn, would help growth. “There is no one answer to this. As an investor, I need growth and if there is no return then people will not invest or take risk. I think the solution is not paying more but increasing productivity. If the productivity is high, even if you pay more it will cost less. Today, the productivity of Indians is poor and we lag behind global peers. The way to make people rich is to increase productivity and that will help growth too,” said Nilesh Shah, MD, Kotak Mahindra AMC.
According to several industry insiders, the informal sector is more affected by the poor wage growth issue than the formal sector. “The data that is displayed is dependent on the period that has been chosen,” stated Naushad Forbes, co-chairman of Forbes Marshall. It will show a different picture if it begins with the COVID period, when salaries first decreased and subsequently increased. Therefore, it depends on where you begin.
