STAGNANT WAGES AND SLOWING GROWTH : ECONOMY

STAGNANT WAGES AND SLOWING GROWTH : ECONOMY

NEWS: Concern in Govt: Private sector profit at 15-year high but salaries stagnant

 

WHAT’S IN THE NEWS?

India's economic growth slowed to 5.4% in Q2 FY24, with wage growth remaining minimal despite rising corporate profits, exacerbating purchasing power issues due to high inflation. This has led to weakened demand, especially in the informal sector, hindering economic recovery.

 

Elaborated Pointers with Subheadings:

  1. Economic Growth and Corporate Sector Income:
    • India's economic growth rate slowed to 5.4% in Q2 FY24.
    • This slowdown is attributed to subdued demand caused by low income growth in the corporate sector.
    • Despite a fourfold rise in corporate profits over four years, wage growth remained minimal across various sectors.
  1. Real Wage Decline and Inflationary Pressures:
    • Real wage growth, which is adjusted for inflation, has been stagnant or even negative in recent years.
    • Consistently high retail inflation over the last five years has exacerbated wage stagnation.
    • This inflationary pressure has reduced workers' purchasing power, impacting overall consumption and slowing down the economic recovery to pre-pandemic levels.
  1. Wage Growth Across Sectors:
    • According to the FICCI-Quess report, there are significant wage disparities among various sectors.
    • IT sector wages were the highest at ₹49,076 per month in 2023.
    • On the other hand, FMCG sector wages were the lowest at ₹19,023 per month.

    • The growth rates for wages varied by sector: logistics and IT sectors saw moderate increases of 4.2% and 4% respectively, but these gains were still insufficient to match inflation.
      1. Corporate Profitability vs. Wage Allocations:
        • Corporate profitability in India reached a 15-year high at 4.8% of GDP in 2024.
        • Despite this, staff costs have declined, with non-managerial compensation witnessing a sharp drop.
        • Experts warn that the imbalance between capital and labor income is weakening demand and creating a self-destructive cycle for businesses, especially those reliant on consumer spending.
      1. Challenges Related to Productivity and Job Quality:
        • Economists attribute slow wage growth to low labor productivity, surplus labor, and underemployment.
        • A significant issue is the lack of quality jobs in India, leading to declining nominal wages and diminished bargaining power for workers.
        • Raising labor productivity is viewed as essential for achieving sustainable wage growth and fostering long-term economic expansion.
      1. Informal Sector Vulnerabilities:
        • Wage stagnation disproportionately impacts the informal sector, which faces inadequate job creation.
        • While formal sector companies offer consistent salary increments, the informal sector suffers from low wages and employment instability.
        • Experts stress the importance of workforce formalization and targeted policy interventions to address these disparities.
      1. Path Forward: Enhancing Productivity and Job Creation:
        • There is a need to raise labor productivity across sectors and focus on employment-generating sectors like textiles and tourism.
        • Policymakers must work towards creating quality jobs, balancing the growth of wages and profits, and formalizing the workforce to ensure broad-based economic recovery.
        • Sustainable consumption growth can be achieved by addressing these critical areas and ensuring a stronger economic foundation.