Wage stagnation: While Indian corporates have experienced stellar growth rates in recent years, this has not translated into wage increases for employees, whose incomes have remained stagnant. Chief Economic Advisor V Anantha Nageswaran recently highlighted this disparity, warning that undercompensating employees could dampen consumer demand and ultimately harm the corporate sector itself.
India is currently grappling with slowing GDP growth, marked by subdued demand even during typically high-spending festive months. The GDP growth for the July–September quarter was at a dismal seven-quarter low. Analysts attribute the downturn in demand to sluggish urban wage growth, which has constrained consumer spending. With a significant portion of the workforce struggling to make ends meet, discretionary spending has plummeted, impacting sectors like fast-moving consumer goods (FMCG), white goods, and automobiles. Even during Diwali, sales were lacklustre, reflecting the weakening purchasing power of consumers.
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Profitability vs employee welfare
Despite record profitability, many Indian companies have chosen to prioritise deleveraging over wage growth. Nageswaran pointed out that the profit after tax of Nifty 500 companies, as a percentage of GDP, reached a 15-year high of 4.8% in FY24. However, staff costs have steadily declined. This cautious approach, evident in quarterly financial data from companies listed on the BSE500 index, shows that spending on employee expenses grew by only 4.5% year-over-year, compared with 6.4% in the previous quarter.
Across industries, the story is similar. For example, in the IT sector, wage growth has fallen below its long-term average. While the financial services sector has remained robust, most other sectors report weak growth in their wage bills, signalling a slowdown in overall wage growth in FY25. With retail inflation eroding purchasing power, employees are left hoping for relief through higher salaries to manage rising living costs.
Blue-collar workers struggle for a living wage
The plight of blue-collar workers paints an even grimmer picture. A report by WorkIndia reveals that over 57% of blue-collar jobs in India pay Rs 20,000 or less per month, leaving workers unable to afford basic needs such as housing, healthcare, and education. A further 29% of jobs fall into the moderate earning bracket of Rs. 20,000–40,000 per month. These low earnings highlight the economic vulnerability of a significant portion of India’s workforce.
This financial strain is particularly pronounced in the construction sector, where skilled workers like plumbers, carpenters, and welders often face low wages despite their expertise. The shortage of skilled labour in this sector has been linked to factors such as urban-to-rural migration and emigration to Gulf countries in search of better pay and dignity. However, a critical issue underlying these trends is that employers frequently undervalue the skills embedded in blue-collar work, perpetuating a culture of low wages. This reflects a broader sociological bias that fails to recognise the dignity and economic contribution of blue-collar workers.
What is a fair compensation
The concept of a living wage is pivotal to ensuring economic justice and dignity. As defined by the World Economic Forum, a living wage is one that allows workers and their families to afford basic necessities such as food, housing, healthcare, and education, without relying on overtime. This is more than just a number on a pay check—it represents a pathway for workers to not only survive but thrive.
In India, however, a large portion of workers remains excluded from minimum wage protections, particularly in agriculture and domestic work. This exclusion exacerbates inequality and perpetuates financial vulnerability, leaving many workers unable to break free from cycles of poverty. The absence of universal wage protections underscores the need for systemic reforms that ensure fair compensation for all.
Combating wage stagnation
Addressing the issue of stagnant wages requires targeted interventions across multiple fronts. One critical step is to enhance the productivity of the workforce through skill development programmes. Such initiatives can empower workers to command better wages and contribute more effectively to the economy.
Wage reforms are equally essential, with a focus on regularly reviewing and updating minimum wages to reflect inflation and rising living costs. This would ensure that workers’ pay keeps pace with the economic realities they face. Finally, fostering the creation of high-paying job opportunities is crucial to providing upward mobility for the workforce and strengthening consumer demand.
The government has a responsibility to create an ecosystem where fair compensation is not an exception but the norm. By prioritising measures that address wage stagnation, the government can help stimulate consumer demand, drive economic growth, and foster social progress.
As CEA Nageswaran aptly emphasised, fair wages are not just a moral imperative—they are essential for sustaining consumer demand, driving economic growth, and fostering societal well-being. Without swift action, the gap between corporate profitability and employee welfare could pose a significant risk to India’s long-term economic stability.