Wages hiked in formal sector, but experts say ‘let’s not conclude’

Providing a much-needed assurance to India’s working populace who suffered the economic fallouts of the COVID-19 pandemic in the form of job losses and pay cuts, a recent report released by the Reserve Bank of India has said that there has been a sharp rise in wages and salaries in the formal sector for the quarter ending June 2021.

According to Indian Express, the RBI data states that the quarter between April-June 2021 showed a huge revival in wage expenses by listed companies which could be a result of salary hikes and fresh recruitment.

The statistics presented by the RBI in its ‘State of the Economy’ report released on Tuesday was based on data drawn from 1,427 listed non-financial companies. The report said that out of 16 key sectors, 11 showed a double-digit growth in salaries, while four reported of more than 20 per cent year-on-year growth in the April-June quarter. IE said these firms account for 86.8 per cent of the market capitalisation of similar group of companies.

Experts, however, have cautioned that the report should not be used to conclude that the economic ill-effects of the pandemic on the job market have subsided yet and that there wouldn’t be further job cuts. They say that the growth in the June 2021 quarter is largely based on that seen in June 2020 which saw many companies cut down on salaries due to the pandemic stress. Besides, experts say the RBI data is only based on listed entities or bigger firms which have the potential to overcome the COVID crisis.

Other experts opined that the RBI data reflected the formalisation of the economy where bigger companies benefitted from the loss of medium and small-scale industries.

“This trend of higher GST and revenue collection, rise in earnings of listed entities and now increase in salaries and wages bill at these companies is indicative of the faster pace of formalisation in the economy post demonetisation,” an economist told IE.

The RBI data also points to an improvement in hiring in the manufacturing and services segments. The Employment Purchasing Managers’ Index (EPMI) also indicates an uptick in hiring in the manufacturing sector, which despite a contraction in July 2021 showed an improvement from the June level.

According to the RBI report, the textiles industry witnessed salaries and wages grow by 37.7 per cent in the June quarter, while the same for auto and auto ancillaries was 25.5 per cent. The wages at metals and mining and consumer durables firms jumped by 22.6 per cent and 21.5 per cent respectively. The Information Technology industry too reported a wage hike of 16.4 per cent.

“Expenses on wages and salaries jumped way above the increases posted in the five preceding quarters, indicative of stepped-up rehiring. Listed companies in two sectors, viz., information technology (IT) and auto and ancilliaries, constituted the highest proportion of total wages and salaries paid by all listed non-financial companies. Hiring activity by the three top IT companies are showing signs of an ebullient revival. In contrast, interest expenses fell sharply, reflecting the impact of deleveraging,” IE quoted the RBI report as saying.

The hotel industry and tourism sector, two among the worst-hit by the pandemic, which saw salaries contract by almost 40 per cent between June and March 2021, reported a small, yet significant wage hike of 4.3 per cent in the June 2021 quarter.

While 11 of the 16 listed sectors showed a double digit growth in salaries, not a single saw a contraction, the RBI report said. This is an improvement from the quarter ending March 2021 which saw only three firms record double digit growth and two saw contraction in wages.

According to the report, the net sales of the 1,427 companies increased by 57 per cent while it had slumped to 34 per cent in April-June 2020.

“The y-o-y jump in net sales this year is admittedly suffused with base effects because of the large fall in the corresponding quarter last year; however, even on a sequential basis (q-o-q) that skirts base effects, net sales of these companies declined around 9 per cent, an appreciable improvement over the plunge a year ago. This suggests that with the ebbing of the second wave, demand is limping back towards normal levels, but a catch-up will take some more time,” IE quoted the report as saying.