Corporate Profits Soar, Wage Growth Stagnates: Economic Survey

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FM Nirmala Sitharaman with Indian Cost Accounts probationers Image credit X.com

FM Nirmala Sitharaman with Indian Cost Accounts probationers Image credit X.com

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Record-Breaking Corporate Profits Heighten Risk of Income Inequality

By Kumar Vikram

New Delhi, January 31: As corporate profits reached a 15-year high in FY24, the wage growth of employees remained sluggish, highlighting a widening gap between capital and labour.

The Economic Survey 2024-25, released by the Government of India, reveals that while large corporations enjoyed unprecedented profitability, wage hikes remained moderate, leaving employees at the mercy of market forces.

The survey highlights that corporate profitability surged, driven by robust performances in financials, energy, and automobile sectors. The profit-to-GDP ratio of Nifty 500 companies climbed from 2.1% in FY03 to 4.8% in FY24, marking the highest level since FY08.

Large corporations in non-financial sectors outperformed their smaller counterparts, reinforcing the dominance of big businesses in India’s economic landscape.

Despite an impressive 22.3% rise in corporate profits in FY24, employment saw only a marginal 1.5% growth.

An analysis by the State Bank of India (SBI) further underscores this disparity, showing that while 4,000 listed companies reported a modest 6% revenue growth, employee expenses grew by just 13%, a drop from 17% in FY23.

The emphasis on cost-cutting and workforce optimization suggests a corporate preference for profit maximization over equitable income distribution.

While the labour share of Gross Value Added (GVA) has seen a minor increase, the disproportionate rise in corporate profits raises concerns about widening income inequality.

With wages stagnating—particularly in entry-level IT positions—consumer purchasing power remains constrained. The survey warns that an economy overly reliant on corporate profits at the expense of wage growth risks slowing down due to weakened demand, which in turn could curb investment in production capacity.

The survey underscores the importance of a balanced income distribution to ensure long-term economic stability. Drawing insights from Japan’s post-World War II industrial growth, it points to a social contract between the government, businesses, and workers that facilitated equitable economic development.

Japanese corporations reinvested in manufacturing, passed productivity gains to workers, and maintained reasonable executive compensation—actions that contributed to sustainable industrialization.

As India navigates its economic trajectory, the survey emphasizes the need for a more balanced approach where both capital and labour benefit.

Ensuring fair wage growth is critical for maintaining consumer spending, sustaining corporate revenue, and driving long-term economic prosperity. Without an equitable distribution of income, the risk of demand contraction and economic stagnation looms large, necessitating a rethink of corporate policies and labour compensation frameworks.

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