Growth in corporate profits needs to be commensurate with wages to boost the economy, Economic Survey 2024-25 said, noting that sharp disparities between the two pose risk to the economy by curbing demand.
The document tabled in Parliament on Friday (January 31, 2025) noted that while the labour share of GVA (gross value added) shows a slight uptick, the disproportionate rise in corporate profits — predominantly among large firms — raises concerns about income inequality.
A higher profit share and stagnant wage growth risk are slowing the economy by curbing demand, it pointed out.
Sustained economic growth hinges on bolstering employment incomes, which directly fuels consumer spending, spurring investment in production capacity, it stated.
To secure long-term stability, a fair and reasonable distribution of income between capital and labour is imperative, it suggested.
It is essential for sustaining demand and supporting corporate revenue and profitability growth in the medium to long run, it pointed out.
The Survey noted that corporate profitability soared to a 15-year peak in FY24, fuelled by robust growth in financials, energy, and automobiles.
Among Nifty 500 companies, the profit-to-GDP ratio surged from 2.1% in FY03 to 4.8% in FY24, the highest since FY08.
Large corporations, especially in non-financial sector, significantly outperformed their smaller peers in profitability, it pointed out.
However, the Survey stated that while profits surged, wages lagged.
A striking disparity has emerged in corporate India: profits climbed 22.3% in FY24, but employment grew by a mere 1.5%. State Bank of India (SBI) analysis reveals that 4,000 listed companies recorded a modest 6% revenue growth.
At the same time, employee expenses rose only 13% — down from 17% in FY23 — highlighting a sharp focus on cost-cutting over workforce expansion, the Survey stated.
Despite Indian companies achieving a stable EBITDA margin of 22% over the last four years, wage growth has moderated. This uneven growth trajectory raises critical concerns.
Wage stagnation
Wage stagnation is pronounced, particularly at entry-level IT positions.
Citing an example, the Survey stated that Japan succeeded in industrialisation and in becoming a developed economy, despite its defeat in World War II through a social contract between the government, businesses and workers.
It noted that Japanese workers, consumers, and retirees all subsidised industrial development by overpaying for goods and services, by taking home a lower share of national output than their counterparts in the West, and by using a financial system designed to transfer purchasing power from households to businesses.
Japanese companies returned the favour by upgrading the country’s manufacturing base, passing along productivity gains to workers, and refraining from excessive executive pay, while the government invested in top-tier infrastructure, it noted.
The Survey noted that driven by robust post-pandemic recovery and increased formalisation, labour market indicators in India have improved substantially in the last few years.
As per Periodic Labour Force Survey (PLFS), the unemployment rate in India has dropped significantly and labour force participation and the worker population ratio have shown considerable improvements.
Additionally, sectors like the digital economy and renewable energy offer vast potential for creating high-quality jobs, which is essential for achieving the Viksit Bharat’s vision.
Economic Survey mentions that the growing participation of women in entrepreneurship can propel the country towards higher levels of development by tapping into their latent potential to contribute to economic activities.
To give a fillip to women’s entrepreneurship, the government has launched several initiatives in terms of easier access to credit, marketing support, skill development, support to women start-ups, etc.
Schemes and initiatives like PM Employment Guarantee Programme, SANKALP, PM Micro Food Processing scheme, Adivasi Mahila Sashaktikaran Yojana, Swayam Shakti Sahakar Yojna, DAY-NRLM etc. are promoting women-led enterprises by offering women entrepreneurs financial support, training, and mentorship, empowering them to start and scale their businesses.
Economic Survey advocates for fostering an enabling labour regulations environment that supports business growth, creates employment and promotes economic development.
It says that by promoting flexible working hours and removing restrictions on the number of overtime hours workers can perform and the overtime wages they can earn, it can lead to growth for firms, creating more employment opportunities.
It will also safeguard labour rights and allow workers to increase their earnings.
Economic survey notes that the growing digital economy and renewal energy sector are providing enhanced opportunities for job creation.
Immense potential
Both these sectors offer immense potential to increase employment, especially opening opportunities for the women and thereby leading to their financial independence and empowerment.
It suggested that skilling strategy needs to adopt a layered approach to address diverse industry demands and workforce needs effectively.
This new approach could include skills tailored for specific tasks or job roles, targeted at selected groups of workers, and foundational AI skills provided universally to everyone and across all sectors.
By aligning these skill tiers with the aspirations and needs of workers, the strategy can better prepare the workforce for a dynamic job landscape with changing demands. The tiered approach allows for training cost-effectively.
Economic Survey mentions that for creating industry-ready workforce, initiatives like internships in companies (PM Internship Scheme) and public-private partnership for skill development and vocational training will go a long way.
Additionally, by creating a skilling ecosystem with a high-quality, globally competitive workforce, India can enhance employability for youth in global job markets.
Published – January 31, 2025 09:52 pm IST
