India’s corporate sector is celebrating record-breaking profits, but the good news hasn’t trickled down to employees. The Economic Survey 2024-25, tabled in Parliament by Finance Minister Nirmala Sitharaman on Friday, reveals that while companies are earning more than ever, wage growth remains sluggish.
Prepared by Chief Economic Advisor V Anantha Nageswaran, the Survey highlights a widening gap between corporate profits and wages, raising concerns about income distribution, productivity, and long-term economic stability. This trend is not new. In FY23 as well, corporate profitability saw a strong rise, driven by post-pandemic recovery, increased exports, and improved operational efficiencies. However, wage growth remained subdued, reflecting companies' focus on productivity gains and automation rather than expanding payrolls. The pattern continues in FY24, further widening the gap between profits and wages.
Record-high profits, but where are the wage gains?
"Corporate profitability soared to a 15-year peak in FY24, fueled by robust growth in financials, energy, and automobiles," the Survey states. The profit-to-GDP ratio of Nifty 500 companies jumped from 2.1 per cent in FY23 to 4.8 per cent in FY24, the highest since FY08. Large corporations, particularly in non-financial sectors, outperformed their smaller peers, solidifying their market dominance.
However, the boom in profits hasn't translated into higher wages. "While profits surged, wages lagged. A striking disparity has emerged in corporate India: profits climbed 22.3 per cent in FY24, but employment grew by a mere 1.5 per cent," said the Survey.
The State Bank of India (SBI) analysed 4,000 listed companies, revealing that while revenue grew by 6 per cent, employee expenses increased by only 13 per cent—a drop from 17 per cent in FY23. This suggests that companies are prioritising cost-cutting over workforce expansion, the survey added.
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Stable margins, sluggish wages
Despite Indian companies maintaining an EBITDA margin of 22 per cent for four years, wage growth has slowed, particularly at entry-level IT jobs, the Survey noted.
"While the labour share of GVA shows a slight uptick, the disproportionate rise in corporate profits—predominantly among large firms—raises concerns about income inequality," it said.
If wages fail to grow alongside corporate profits, it could lead to weaker consumer demand, affecting economic momentum. The Survey also warns that sustained growth depends on increasing employee earnings, which drive spending and investment in production capacity.
A lesson from Japan’s economic model
Drawing a parallel to Japan’s post-World War II industrialisation, the Survey emphasised the importance of a balanced income distribution between capital and labour for long-term stability.
"Japanese workers, consumers, and retirees all subsidised industrial development by overpaying for goods and services, taking home a lower share of national output than their Western counterparts, and supporting a financial system designed to transfer purchasing power from households to businesses," it said.
In return, Japanese companies upgraded the country's manufacturing base, shared productivity gains with workers, and invested in infrastructure, setting the stage for decades of economic success.