Corporate India is riding a wave of record-breaking profits, but employees have been left out, the Economic Survey has said. The Survey highlights a widening gap between corporate profits and wages, raising concerns about income distribution, productivity, and long-term economic stability.
Corporate India, however, appears to have a different take. While some said it’s been “hyped up” unnecessarily, others like CII President and ITC chairman Sanjiv Puri said, “wages need to be indexed to inflation, not profitability. When inflation goes down, wages don’t go down.”
Added Nadir Godrej, chairperson, Godrej Industries Group, “Wages will grow slower than the economy, in part, because the demand environment remains challenging and capacity utilisation is not optimal at the moment.” He also pointed out that while different sectors will have to look at wage growth and hiring, one has to keep in mind that there are constant attempts at improving productivity with the use of digitisation and AI. “So, I am not sure that a lot of hiring will happen as a result of the productivity initiatives undertaken by companies,” he explained.
Kartik Narayan, CEO, TeamLease Services said that a large part of the corporate tax cuts in 2019, which was expected to go into wage increases, has instead gone into the bottom line of companies. “Just before the pandemic, there was a slowdown and this action (tax cuts) was taken. However, due to the pandemic, government and corporates faced multiple issues. Post that, consumer inflation and lack of growth has stagnated wage growth, as companies continue to tighten their belts and corporate investment has not taken off at the rate it was expected to. These are the reasons due to which wage stagnation has happened,” he added.
The Survey said in FY23 as well, corporate profitability saw a strong rise, driven by post-pandemic recovery, increased exports, and improved operational efficiencies. However, wage growth remained subdued, reflecting companies’ focus on productivity gains and automation rather than expanding payrolls. The pattern continues in FY24, further widening the gap between profits and wages.
“Corporate profitability soared to a 15-year peak in FY24, fuelled by robust growth in financials, energy, and automobiles,” the Survey states. The profit-to-GDP ratio of Nifty 500 companies jumped from 2.1% in FY23 to 4.8% in FY24, the highest since FY08. Large corporations, particularly in non-financial sectors, outperformed their smaller peers, solidifying their market dominance.
However, the boom in profits hasn’t translated into higher wages. “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%,” said the Survey.
“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 said.
The Survey pointed out that 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, it said. “Wage stagnation is pronounced, particularly at entry-level IT positions.”
“Sustained economic growth hinges on bolstering employment incomes, which directly fuel consumer spending, spurring investment in production capacity,” it added. “It is in the enlightened self-interest of the Indian corporate sector, swimming in excess profits, to take its responsibility to create jobs seriously,” the Survey noted.
The Survey also highlights a troublesome trend: corporate profits are increasingly concentrated among large firms. “While the labour share of GVA shows a slight uptick, the disproportionate rise in corporate profits—predominantly among large firms—raises concerns about income inequality,” it noted.