Stagnant Wages and Slowing Growth: Addressing India’s Economic Imbalance

Corporate profits in India reached a 15-year high in March 2024, with profit after tax hitting 4.8% of GDP. Despite these profits, wage growth in the private sector has stagnated, sparking concerns over reduced demand and broader economic recovery post-COVID-19.

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Key Stats About Stagnant Wages and Slowing Growth

Stagnant Wage Growth

Wages in key sectors have grown very slowly over the last five years (2019–2023):

Engineering, Manufacturing, Process, Infrastructure (EMPI):8% annual growth.
Fast-Moving Consumer Goods (FMCG):4% annual growth (highest among sectors).
Banking, Financial Services, and Insurance (BFSI):8% annual growth.
Retail:7% annual growth.
Information Technology (IT): 4% annual growth.
Logistics:2% annual growth.

Impact of Inflation on Wages

Inflation during the same period eroded real wages:
Inflation rates were 8% (2019–20), peaking at 6.7% (2022–23), and slightly moderated to 5.4% (2023–24).
For many workers, real income (wages adjusted for inflation) either stagnated or declined, making their purchasing power weaker.

Average Wages Across Sectors

FMCG workers earned the lowest average wage of ₹19,023/month in 2023.
IT professionals had the highest average wage of ₹49,076/month in 2023.

Reasons Behind Stagnant Wages

Labour Surplus:
- Post-pandemic, India’s economic growth is behind by 7% compared to pre-COVID projections.
- A larger workforce is competing for limited opportunities, reducing employees’ bargaining power for higher wages.
Global Trends:
- A declining share of wages in GDP is a worldwide phenomenon, driven by weaker organized labour since the 1990s.
Low Productivity:
- Indian labour productivity remains poor compared to global standards.
- Without productivity improvements, wage increases become unsustainable for businesses.
Corporate Cost Optimization:
- Many companies have reduced staff costs to maintain profit margins.
- Managerial compensation often remains high, but the decline in wages is sharper for non-managerial roles.

Way Forward

Productivity Enhancement:
- Investment in skill development and technology can improve labour productivity, enabling sustainable wage increases.
Formalization of Workforce:
- Expanding formal employment opportunities can help bridge income gaps, especially in labour-intensive sectors.
Balancing Profits and Wages:
- Businesses must share their profits more equitably with workers to ensure demand remains robust.
Sector-Specific Interventions:
- Boost employment in industries like textiles, tourism, and manufacturing to create more quality jobs.