Employment growth remains sluggish at just 1.5%, exposing a widening gap between corporate earnings and workforce expansion
India's corporate profitability has reached a 15-year high, driven by robust growth in financials, energy, and automobiles. Ironically, the surge in profits has not translated into a corresponding rise in wages, raising concerns about economic sustainability and income distribution.
In FY24, corporate profitability in India soared to its highest level since FY08. The profit-to-GDP ratio among Nifty 500 companies surged to 4.8%, up from 2.1% in FY03. Large corporations, especially in non-financial sectors, significantly outperformed smaller firms in profitability.
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A report from the State Bank of India (SBI) highlighted that profits for listed companies rose by 22.3% in FY24.
Sluggish employment growth
However, employment growth remained sluggish at just 1.5%, exposing a widening gap between corporate earnings and workforce expansion. Revenue growth across 4,000 listed firms was modest at 6%, while employee expenses increased by only 13% — a sharp decline from 17% in FY23 — indicating a strong emphasis on cost-cutting rather than workforce investment.
Wage stagnation amid rising profits
Despite a stable EBITDA margin of 22% over the last four years, wage growth has moderated, particularly for entry-level positions in the IT sector. While the labour share of Gross Value Added (GVA) has seen a slight increase, the disproportionate rise in corporate profits — primarily among large firms — raises concerns about rising income inequality.
Economists warn that a continued imbalance between profit growth and wage stagnation could stifle economic momentum. If wages fail to keep pace with profits, consumer demand may weaken, limiting investment in production and slowing down economic expansion.
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Need for a balanced growth model
Sustained economic growth depends on a fair distribution of income between capital and labour. A more equitable wage structure is crucial to boosting demand, supporting consumer spending, and driving long-term corporate revenue growth. Without a recalibration in corporate earnings distribution, the risk of an economic slowdown looms large, potentially impacting India’s growth trajectory in the years to come
Japan example offers insight
A look at Japan’s post-World War II Industrialisation offers an interesting contrast.
According to Matthew C. Klein and Michael Pettis in their book Trade Wars are Class Wars, Japan’s economic success was built on a social contract between the government, businesses, and workers. Japanese workers accepted lower wages and high costs of goods, while companies reinvested in manufacturing and productivity, ensuring stable economic growth and equitable wealth distribution.
This model, which prioritised long-term stability over short-term profits, stands in stark contrast to the current trend in India.
