Slow pace of pay growth adds to hurdles in way of India's economic recovery

Joblessness may be easing in India as the economy gradually reopens from the world’s biggest lockdown, but wage growth remains subdued -- dashing hopes of a recovery in the consumption-driven economy.

A survey by Deloitte Touche Tohmatsu India LLP showed average salaries gained 3.6 per cent in the fiscal year that started in April, down from 8.6 per cent a year ago. Only 23 per cent of the companies surveyed said they planned to offer hikes next year.

Wage bills of companies increased by just 2.9 per cent in the three months to June from a year ago -- the slowest growth in 18 years, according to a separate analysis of 1,560 listed companies by Mumbai-based private research firm Centre for Monitoring Indian Economy Pvt.

“If you look at the manufacturing sector, wages declined by 7 per cent. So that’s a deep gash,” Mahesh Vyas, managing director of CMIE, said by phone. He doesn’t see wage growth going back to pre-Covid levels in the “foreseeable future” as “the economy is facing a serious problem of contraction of income.”

CMIE estimates the jobless rate fell to 7.4 per cent in July from a record 23.5 per cent in April, the height of coronavirus-related curbs. Slowing wage growth risks squeezing private spending in Asia’s third-largest economy, where consumption accounts for about 60 per cent of gross domestic product. India’s GDP will shrink 4.5 per cent this year as a result of the pandemic, according to the International Monetary Fund.

GDP Contraction

The lockdown’s damage to the economy will be reflected in quarterly GDP data due Aug. 31. Economists in a Bloomberg survey predict a 19.5 per cent contraction in the three months through June.

“Given the structure of labor markets, we believe that most of the pre-pandemic jobs will return, but the wage outlook is likely to be dimmer compared to the pre-pandemic world,” HSBC Holdings Plc analysts, led by Pranjul Bhandari in Mumbai, said in a report last month.

Staff costs increased by only 3 per cent last quarter, with companies including billionaire Mukesh Ambani’s Reliance Industries Ltd, as well as the likes of Dabur India Ltd., Bajaj Auto Ltd., Maruti Suzuki India Ltd., and Tata Motors Ltd. reporting a decline in employee costs, according to an analysis by BofA Securities.

“I would assume this 3 per cent growth is more on the back of employees coming in rather than pay per employee going up,” said Amish Shah, a research analyst at BofA Securities. Commentary from some companies suggests pay cuts have happened, and that might affect discretionary spending, he said.