The Economic Survey 2024-25 on Friday strongly advocated that the India Inc must adequately compensate its employees to reduce income inequality, given that the corporate profitability has soared to a 15-year high in FY24.

The Economic Survey seconded concerns Chief Economic Advisor (CEA) V Anantha Nageswaran displayed last December over poor employee compensation by India Inc.

“Not paying employees well will be self-destructive for corporates as weak income levels won’t generate sufficient demand for their products,” Nageswaran had said.

The Economic Survey came up with statistics that showed striking disparity in the corporate world. While profits went up to 22.3 per cent in FY24, employment grew by a mere 1.5 per cent, it said.

“State Bank of India (SBI) analysis reveals that 4,000 listed companies recorded a modest 6 per cent revenue growth. At the same time, employee expenses rose only 13 per cent-down from 17 per cent in FY23, highlighting a sharp focus on cost-cutting over workforce expansion,” the document placed in both Houses of parliament pointed out on the eve of Budget.

“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 per cent in FY03 to 4.8 per cent in FY24, the highest since FY08. Large corporations, especially in non-financial sectors, significantly outperformed their smaller peers in profitability, the Survey elaborated.

Stagnant wage growth

However, while profits surged, wages lagged.

A higher profit share and stagnant wage growth risk slowing the economy by curbing demand.

To secure long-term stability, a fair and reasonable distribution of income between capital and labour is imperative, the Economic Survey asserted.

Japan succeeded in industrialisation and in becoming a developed economy, despite its defeat in World War II through a social contract between the government, the businesses and workers.

The wage growth has moderated, despite Indian companies achieving a stable EBITDA margin of 22 per cent over the last four years, raising critical concerns.

Wage stagnation is pronounced, particularly at entry-level IT positions.

It 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.

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