Economic Survey underlines India's wage stagnation amid record corporate profits
What's the story
The Economic Survey for 2024-25, tabled in Parliament earlier today by Finance Minister Nirmala Sitharaman, has highlighted a sharp rise in corporate profits. But this financial boon has not been accompanied by a similar increase in wages. The report highlights a widening gap between corporate earnings and employee salaries, flagging concerns over income distribution and sustainable economic growth.
Profit surge
Corporate profitability reaches 15-year peak in FY24
The Economic Survey reveals that corporate profitability hit a 15-year high in FY24, fueled by robust performance in the financial, energy, and automobile sectors. The profit-to-GDP ratio for Nifty 500 companies increased from 2.1% in FY23 to an impressive 4.8% in FY24, the highest since FY08. Large corporations, especially outside the financial sector, outperformed smaller firms and solidified their market dominance.
Wage disparity
Wage growth lags as corporate profits soar
Despite the spike in corporate profits, wage growth has been sluggish. The Economic Survey underlines a stark contrast in India's corporate sector: while profits increased by 22.3% in FY24, employment only grew by a paltry 1.5%. An analysis of 4,000 listed companies by the State Bank of India (SBI) found that while revenue increased by 6%, employee expenses increased only 13%, down from 17% in FY23.
Stagnant wages
Slow wage growth despite high EBITDA margin
The Economic Survey also noted that despite Indian companies sustaining an EBITDA margin of 22% for four years, wage growth has been especially sluggish in entry-level IT jobs. "While the labor share of GVA shows a slight uptick, the disproportionate rise in corporate profits—predominantly among large firms—raises concerns about income inequality," the survey said.
Economic implications
Economic survey warns of potential impact on consumer demand
The Economic Survey warned that if wages don't rise in tandem with corporate profits, it could lead to weaker consumer demand and hamper economic momentum. It stressed that sustained growth rests on increasing employee earnings, which fuel spending and investment in production capacity. The report drew parallels with Japan's post-World War II industrialization, highlighting the importance of balanced income distribution between capital and labor for long-term stability.