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India's recent economic performance reveals a stark contrast between booming corporate profits and stagnant wage growth, raising serious concerns about the nation's economic trajectory. The July-September 2024 quarter saw a slowdown to a 5.4% growth rate, fueling anxieties among policymakers and business leaders. A report by FICCI and Quess Corp highlights the alarming disparity, pinpointing minimal wage growth across key sectors between 2019 and 2023. This stagnation in wages, coupled with persistent inflation averaging 5.7% annually, has effectively resulted in stagnant or even negative real income growth for a significant portion of the population. This situation has been described as 'self-destructive' by Chief Economic Advisor V Anantha Nageswaran, who emphasizes the urgent need for a more equitable distribution of income between capital (profits) and labor (wages). He argues that without a fairer balance, robust consumer demand – crucial for corporate growth – will remain elusive. The report reveals a compounded annual wage growth rate of a mere 0.8% in the engineering, manufacturing, process, and infrastructure (EMPI) sectors, and a slightly higher 5.4% in the fast-moving consumer goods (FMCG) sector. Average wages in 2023 varied significantly, ranging from Rs 19,023 in FMCG to Rs 49,076 in the IT sector, yet the impact of inflation significantly undermines these figures.
The juxtaposition of weak wage growth with a fourfold increase in corporate profits over the last four years underscores the deep-seated problem. Nageswaran points to the declining staff costs of listed Indian companies, particularly when excluding managerial compensation, as further evidence of this imbalance. Economists have offered various explanations for this phenomenon. Soumya Kanti Ghosh, chief economic advisor at SBI, attributes slow wage growth to an oversupply of labor and low labor productivity, highlighting India's substantial underemployment problem. He emphasizes the critical need for generating high-quality jobs to broaden consumption. This view aligns with the suggestions of industry leaders who advocate for productivity increases as a key solution. Nilesh Shah, MD of Kotak Mahindra AMC, asserts that boosting productivity is the pathway to increased wealth and economic growth. This approach, however, neglects the systemic issues contributing to the current wage stagnation and fails to address the concerns of those in the informal sector.
While some experts like Naushad Forbes of Forbes Marshall contend that the formal sector has experienced consistent wage growth of 5-10% annually, placing the onus primarily on the informal sector, a more nuanced approach is required. Forbes’ suggestion to focus policy on greater workforce formalization and employment generation in sectors like textiles and tourism is a valuable contribution, but it’s crucial to acknowledge that formalization alone is insufficient to address the systemic inequalities that contribute to wage stagnation across all sectors. A comprehensive solution demands a multi-pronged approach. Policies must address labor market inefficiencies, promote investments in education and skill development to enhance productivity, and strengthen labor laws and protections to ensure fair compensation for workers. Simultaneously, corporate social responsibility initiatives aimed at ensuring fair wages and improving working conditions can play a vital role in fostering a more inclusive and equitable economy. Without addressing these systemic issues and finding a balance between profit maximization and fair wage distribution, India risks perpetuating a vicious cycle of sluggish demand, hindered economic growth, and widening income inequality, thereby undermining its potential for sustainable development.
The current situation calls for a collaborative effort involving the government, industry, and labor organizations. Policy interventions aimed at fostering greater formalization of the workforce, addressing underemployment through the creation of high-quality jobs, and promoting investment in education and skill development are essential. Simultaneously, a national conversation needs to be initiated to establish a new social contract that prioritizes fair wage distribution and acknowledges the critical role of labor in driving economic growth. Corporate entities need to adopt responsible business practices that go beyond profit maximization, incorporating principles of social responsibility and fair compensation into their operational strategies. Ultimately, sustainable economic growth in India requires a fundamental shift in mindset, moving away from a solely capital-centric approach towards a more balanced and inclusive model that values and rewards the contributions of its workforce. Only through such a shift can India realize its true economic potential and foster a more equitable and prosperous society for all.
Source: Corporate Profits Quadruple As Wage Growth Stalls, Raising Concerns For India’s Economy: Report