The Economic Survey 2024-25: A Deep Dive into Wage Growth vs. Corporate Profits

The Economic Survey 2024-25: A Critical Examination

The Economic Survey 2024-25 presents a troubling narrative regarding the state of corporate profits and wage growth in India. While corporate profits have surged to unprecedented levels, employee wages have lagged significantly, creating a disparity that threatens economic stability and exacerbates income inequality.

Understanding the Issue

To fully grasp the implications of this trend, let us delve into the key points:

• Corporate Profit Growth:
  • Major corporations in India have reported a notable increase in profits, with the profits of Nifty 500 companies rising to 4.8% of GDP in FY24, marking the highest level in 15 years.
  • Sectors such as finance, energy, and automobiles have been at the forefront of this growth, aided by a robust recovery from the pandemic and the formalisation of the economy.
• Wage Growth:
  • Despite the profit boom, employee expenses only grew by 13% in FY24, falling significantly short of profit increases.
  • Employment levels rose by merely 1.5% in the last year, despite stable profitability across sectors.
  • The State Bank of India reported a decline in employee expenses from 17% in FY23 to 13% in FY24 among 4,000 listed companies, highlighting a trend of cost-cutting.
• Labour Share in the Economy:
  • The labour share of Gross Value Added (GVA) has shown only marginal improvement, indicating stagnant wage growth.
  • A stark contrast between corporate profits and labour income reveals a growing inequality within the economy.

Impacts of This Disparity

The widening gap between wages and profits has significant implications:

• Slowing Economic Growth:
  • Stagnant wages adversely affect household incomes, leading to decreased consumer spending, which is vital for sustained economic growth.
  • The diminished purchasing power of employees can ultimately harm medium and long-term corporate profitability.
• Increased Income Inequality:
  • The concentration of wealth among large corporations, coupled with stagnant wages, exacerbates the wealth gap.
  • This disparity can lead to socio-economic issues such as diminished social mobility and increased disparities.
• Workforce Challenges:
  • Sectors with potential for job creation, such as the digital economy and renewable energy, require substantial investment and policy backing to accommodate the expanding workforce.
  • Although the formalisation of employment has progressed, slow job growth continues to be a pressing concern.

Recommendations by the Survey

To address these challenges, the Economic Survey offers several key recommendations:

• Fair Income Distribution:
  • A balanced approach to income distribution between capital (profits) and labour (wages) is essential to stimulate demand and foster long-term economic stability.
• Policy Measures:
  • Regulatory frameworks should be designed to promote wage growth, safeguard workers’ rights, and encourage inclusive economic growth.
  • Investments in high-growth sectors, particularly in the digital economy and renewable energy, are critical for creating quality jobs and sustaining economic advancement.
• Fostering Employment:
  • Reducing cost-cutting measures that negatively impact workers and promoting employee-centric policies can enhance workforce participation and productivity.

The Way Forward

The survey emphasizes the necessity for an equitable growth model that prioritizes job creation alongside corporate profitability. Addressing wage stagnation and ensuring a fair resource distribution will be pivotal in strengthening India’s path toward becoming a developed economy. Ultimately, a thriving economy is one where its workers prosper.