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Formalising of Indian economy: Private sector pay set to outpace public sector, says report

Further, growth in corporate employees’ pay compared to the growth in nominal GDP shows signs of pick-up in the economy after the COVID-19 pandemic, an ICICI Securities report said.

Indian economy, private sector jobs, public sector jobs
The pay of private sector employees is growing at par with the public sector and is expected to outpace them, showing signs of formalisation of the economy, ICICI Securities said in a recent report. (Representational image)

The pay of private sector employees is growing at par with the public sector and is expected to outpace them, showing signs of formalisation of the economy, ICICI Securities said in a recent report. Further, growth in corporate employees’ pay compared to the growth in nominal GDP shows signs of pick-up in the economy after the COVID-19 pandemic, the report added.

Opening of economy post-pandemic contributed to the growth

This pick-up in employee pay and job creation could be credited to various factors such reopening post covid restrictions in contact-intensive sectors, pick-up in real estate construction activities, infrastructure development, manufacturing driven by export demand and PLI, high demand for IT and digital service professionals and the natural progression of formalisation seen over the past decade, Vinod Karki, Equity Strategist, ICICI Securities said. Latest annual salary surveys also indicate a salary increase of around 9 per cent alongside robust hiring.

For FY 2021, the compensation of employees as a percentage of GDP in the public sector stood at 12.9 per cent, remaining flat since FY 2012 but also resilient to the pandemic. In comparison, the compensation of private sector employees as a percentage of GDP stood at 12 per cent, an upward trajectory from around 8 per cent in FY 2012. “Faster than nominal GDP expansion of COE for the private corporate sector indicates clear sign of formalisation of the economy and improving productivity,” the brokerage said in a report last week.

‘Lion’s share’ of Indian economy still under informal sector

The positive trend through “significantly high per capita income” of this segment, is positive for the gross savings rate and discretionary consumption within the formal corporate sector, ICICI Securities said. However it should also be noted that the lion’s share of total workforce in the country (89 per cent) is still part of the informal sector, which still faces challenges in aggregate demand. Average per capita income in India stands at Rs 1.5 lakh per annum, while the average per capita income in the corporate sector stands between Rs 7 to 9 lakh per annum, Vinod Karki said

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