The sharp slump in economic growth rate to 5.4 per cent in July-September this year has sparked concerns among policymakers that low single-digit income growth in the corporate sector despite 4x (four times) growth in profits over the last four years, is one of the reasons behind the slowing of demand.
What has triggered conversations within corporate boardrooms, key economic ministries, and between the two, is a report prepared for the government by industry chamber FICCI and Quess Corp Ltd, a tech-enabled staffing firm with 3,000-plus clients, which showed that the compounded annual wage growth rate across six sectors between 2019 and 2023 ranged between 0.8 per cent for the engineering, manufacturing, process and infrastructure (EMPI) companies and 5.4 per cent for fast-moving consumer goods (FMCG) firms.
What has made matters worse for workers even in formal sectors is a meagre or negative growth in real incomes i.e., wage growth when adjusted for price rise or inflation. Over the five years from 2019-20 till 2023-24, retail inflation rose 4.8 per cent, 6.2 per cent, 5.5 per cent, 6.7 per cent and 5.4 per cent, respectively.
Chief Economic Advisor V Anantha Nageswaran referred to the FICCI-Quess report in at least a couple of his addresses in corporate gatherings, and suggested India Inc needs to look within, and probably do something about it.
Sources in the government said weak income levels were one of the reasons for subdued consumption, especially in urban areas. “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 The Indian Express.
The FICCI-Quess survey results, which are not in public domain but accessed by the newspaper, show that the compounded annual growth rate (CAGR) for wages during 2019-23 has been the lowest for the EMPI sector at 0.8 per cent.
It was the highest for the FMCG sector at 5.4 per cent. For BFSI (banking, financial services, insurance), wages grew at 2.8 per cent during 2019-23; for retail at 3.7 per cent; for IT at 4 per cent; and logistics 4.2 per cent.
In absolute terms, the average wage was the lowest for the FMCG sector at Rs 19,023 in 2023, and highest for the IT sector at Rs 49,076 in 2023.
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At Assocham’s Bharat @100 Summit on December 5, Nageswaran said there has to be a better balance between the share of income going to capital in terms of profits and the share of income going to workers as wages. “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.
In fact, profitability of corporates was at a 15-year high in March 2024, Nageswaran pointed out.
“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.
In the survey, the average gross wage has been calculated based on the cumulative salary of all employees across different job roles in a particular sector divided by the total number of employees. The survey noted that the wage growth is indicative and not definitive because the salary varies based on job roles, with some job roles getting higher wages than the rest.
The concern over depressed wages is learnt to have come up in several internal discussions in the government.
Putting things in perspective, an analyst in India Inc, who is aware of the discussions in the government, said at this macroeconomic stage of development, India is bound to see an increase in inequality.
“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 Indian Express 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.
Some in the industry said the slow wage growth issue is a problem more for the informal sector and not in the formal sector. Naushad Forbes, Co-chairman, Forbes Marshall said, “The data being presented depends upon what period has been selected. If it starts from Covid period, then it will present a different picture as salaries went down and then came up. So it depends upon where you start.”
“I think it is not an issue in the formal sector as companies have been going for 5-10 per cent salary growth each year for many years now. The challenge is in the informal sector and that is where the concern lies. Also, the more important aspect is the number for job creation and employment generation. I think there should be a policy focus on greater formalisation of the workforce broadly and how we can make more employment generation sectors such as textile, tourism flourish,” he said.
Source : indianexpress
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