Contrary to expectations, private consumption has held up fairly well over the past nine months, growing by about 7.5% year-on-year. But the headline number conceals a troubling divide. Much of the spending appears to have been driven by affluent households that have retained their purchasing power despite difficult economic conditions. The premiumisation visible across goods and services also suggests that it is largely the better-off who are sustaining demand. For a large section of the population, meanwhile, the cumulative rise in prices has placed even basic goods beyond easy reach. Finance Minister Nirmala Sitharaman therefore has a point when she says the next phase of growth will depend on raising the incomes — and purchasing power — of those outside the affluent urban class. India cannot build a broad consumption economy if most workers earn barely enough to cover essentials.
The disparity between salaried employees in the formal sector and those working outside it remains unacceptably wide. A recent ICICI Securities study found that while the aggregate wages and salaries pool grew by 13% in FY25, the informal sector recorded a much slower growth. The difference in absolute earnings is starker: the share of the informal sector in the wage pool stagnated at about 9% of gross value added, while that of private corporate employees rose to a record 17%. Other estimates show that regular salaried workers account for roughly a fourth of the workforce and those in formal employment just 11%. Yet this small formal cohort earns an estimated 77% of the total wage pool. It is primarily this segment that is driving consumption. Such a narrow base is neither equitable nor sustainable; unless income growth reaches workers lower down the ladder, demand will remain skewed and vulnerable.
The government is seeking to establish a statutory floor wage based on minimum living standards, with room for regional variation. States will not be permitted to prescribe minimum wages below this floor, although they can retain higher prevailing rates. The framework could prevent wages from being fixed at unrealistically low levels, but its effectiveness will depend on whether the floor reflects the actual cost of food, housing, transport, healthcare, and education — and whether employers comply with it. A wage notified on paper is of little use if it is not paid. The protests by workers in Noida earlier this year underlined the problem: many reportedly earn only about Rs 10,000 a month, an amount that can scarcely cover basic living costs in a major urban centre. Similar conditions prevail across industrial clusters and service-sector jobs.
Higher wages will increase costs for employers, particularly smaller enterprises operating on thin margins, and any transition must be calibrated and accompanied by measures to improve productivity. But businesses cannot treat persistently low wages as their principal source of competitiveness. As Chief Economic Adviser V Anantha Nageswaran has observed, India’s economic growth can produce meaningful transformation only when its gains are shared fairly between workers and companies. Fairness is not charity; it is a condition for a healthy market economy. The wide gap between the remuneration of top corporate executives and median employees also merits closer scrutiny. Corporate India must look beyond short-term profit maximisation: paying workers fairly can strengthen productivity, reduce attrition, and expand the consumer market on which businesses themselves depend. Better wages are not merely a welfare measure; they are essential economic infrastructure.