Corporate Profits Quadruple As Wage Growth Stalls, Raising Concerns For India’s Economy: Report

India's economic growth slowed to 5.4 per cent in the July-September quarter of 2024, triggering concerns among policymakers and corporate leaders about stagnant wages and their impact on demand recovery.

A report by industry chamber FICCI and staffing firm Quess Corp highlights that wage growth in six key sectors from 2019 to 2023 was minimal, exacerbating weak consumption.

The report reveals the compounded annual wage growth rate was just 0.8 per cent in the engineering, manufacturing, process, and infrastructure (EMPI) sectors and 5.4 per cent in fast-moving consumer goods (FMCG).

Average wages in 2023 ranged from Rs 19,023 in FMCG to Rs 49,076 in the IT sector.

However, real income growth has been stagnant or negative due to inflation, which averaged around 5.7 per cent annually over five years.

Chief Economic Advisor V Anantha Nageswaran has described the issue as “self-destructive,” urging India Inc to reevaluate its wage structures.

Speaking at Assocham’s Bharat @100 Summit, he said, “There has to be a better balance between the share of income going to capital in terms of profits and the share going to workers as wages. Without that, there will not be adequate demand in the economy for corporates’ own products to be purchased.”

Despite a fourfold increase in corporate profits over the last four years, wage growth has remained weak.

Nageswaran noted that the staff costs of Indian listed companies have been declining, especially when managerial compensation is excluded.

Economists like Soumya Kanti Ghosh, chief economic advisor at SBI, attribute slow wage growth to an oversupply of labor and low labor productivity.

“India actually has an underemployment problem. We must produce good quality jobs to ensure consumption is more broad-based,” Ghosh said.

Industry leaders propose raising productivity as a solution.

Nilesh Shah, MD of Kotak Mahindra AMC, said, “The way to make people rich is to increase productivity, and that will help growth too.”

Some experts, like Naushad Forbes of Forbes Marshall, argue the formal sector has seen consistent wage growth of 5-10 per cent annually, while the issue lies primarily in the informal sector.

“There should be a policy focus on greater formalisation of the workforce and employment generation in sectors like textiles and tourism,” he added.

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