V Anantha Nageswaran, the Chief Economic Advisor, referred to this report at least twice in his corporate speeches. He suggested that India Inc. should look inward and do something to fix it.
Policymakers are concerned that the sharp drop in economic growth to 5.4% in July-September of this year, despite a 4x (four-fold) increase in profits in the last four-year period, could be one of the factors behind the slowdown in demand.
The report by the industry chamber FICCI, in collaboration with Quess Corp Ltd (a tech-enabled firm that has over 3,000 clients), which was prepared for the government, has sparked conversations between corporate boardrooms and key economic ministries. It showed the wage growth rates for six different sectors from 2019 to 2023 varied between 0.8 percent for engineering, manufacturing and process infrastructure (EMPI), and 5.4 percent for fast-moving consumers goods (FMCG).
The situation has gotten worse for workers in the formal sector due to a lack of growth in real wages, i.e. wage growth adjusted for inflation. Retail inflation increased by 4.8 percent, 6.2 percent, 5.5%, 6.7%, and 5.4 percent over the five-year period from 2019-20 to 2023-24.
V Anantha Nageswaran, the Chief Economic Advisor, referred to this report at least twice in his corporate speeches. He suggested that India Inc. should look inward and do something to fix it.
According to government sources, the subdued consumer spending in urban areas is due in part to low income levels. Sources in the government said that the consumption increased post-Covid due to pent-up demands, but wage growth was slower, which has raised concerns about the full recovery of the economy to its pre-Covid phase.
The FICCI/Quess results are not public but the newspaper has accessed them. They show that, for the EMPI Sector, the CAGR for wages between 2019 and 23 was the lowest at only 0.8%.
The FMCG sector had the highest growth rate at 5.4%. In BFSI (banking and financial services, insurance), the wage growth rate was 2.8% during 2019-23. Retail saw a 3.7% increase, IT had a 4.0% rise, and logistics saw 4.24%.
The FMCG sector had the lowest average wage at Rs 19,023 and the IT sector the highest at Rs 49 076 in 2023.
Nageswaran stated that at Assocham’s Bharat@100 Summit, on December 5, there must be a better balanced between the incomes going to the capital as profits and the incomes going to the workers as wages. Without that, the demand for corporate products will be insufficient. He said that not paying employees or not hiring enough workers would end up damaging the corporate sector.
Nageswaran noted that the profitability of corporations was at its highest level in 15 years by March 2024.
"The previous record was 5,2% of GDP in profit after taxes, which occurred in March 2008. This was the boom period. In a difficult global environment, and after Covid... it is amazing that we can get to 4,8% in 2024. 2008 was a much more favourable global growth environment. Profitability growth is therefore very impressive. He said that the growth of profits in Indian corporations has been four times in the past four years.
Nageswaran stated that the staff costs of listed Indian companies have been decreasing, whether they are IT firms or other general businesses. "In other words the growth of compensation for employees is becoming weaker. "If you remove the compensation for managers, then it will be even worse," he said.
The average gross salary was calculated in the survey based on the sum of the salaries of all employees working across various job roles within a certain sector, divided by the number of employees. The survey stated that wage growth was indicative, not definitive. This is because salaries vary based on the job role. Some job roles receive higher wages than others.
It is reported that the concern about low wages has been raised in many internal government discussions.
An analyst at India Inc., who knows about the government's discussions, says that India will see an increase of inequality in this stage of macroeconomic development.
"The pandemic accentuated the issue; we are 7% behind the growth trajectory before the pandemic. You cannot ignore the fact that India's workforce is growing at a rapid pace. Our economy is a year behind schedule, but we have an extra year of work," said the unnamed analyst.
The bargaining power of the labour force is reduced because there is an excess of labour relative to capital. The analyst said that slow wages growth was inevitable. Should Corporate India take action? Analyst: "In this macro-environment, this is what ...," will happen.
Experts have suggested that raising productivity would be the answer to boosting growth. "There's no single answer. As an investor I need growth. If there is no return, people won't invest or take risks. I don't think paying more is the answer, but rather increasing productivity. Even if the cost is higher, a high level of productivity will make it cheaper. India's productivity is low and we are lagging behind our global counterparts. "The way to make people wealthy is to increase productivity, and that will also help growth," said Nilesh Sha, MD of Kotak Mahindra AMC.
Several in the industry believe that the issue of slow wage growth is more of a concern for the informal sector than the formal sector. Naushad Forbes said that the data presented is dependent on which period was selected. It will show a different picture if it starts with the Covid period. This is because salaries decreased and then increased. It depends on where you begin."
"I don't think there is a problem in the formal sector, as companies have been aiming for salary increases of 5-10% per year for several years." It is the informal sector that poses the greatest challenge. The number of jobs created and the employment generated is also more important. "I think that there should be more focus on formalising the workforce and on how to make employment-generating sectors like textiles, tourism, flourish," said he.
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