New Delhi: A recent survey by the Ministry of Statistics and Programme Implementation has revealed that the real wages of most salaried Indian workers have either decreased or remained stagnant over the past six years. This trend has resulted in reduced purchasing power, ultimately affecting economic growth.
According to the Periodic Labour Force Survey (PLFS) data, the average monthly earnings of rural Indian workers dropped to Rs 8,842 in 2023-24, down from Rs 9,107 in 2017-18. Similarly, the real wages of male and female workers in rural areas also declined during this period.
In urban areas, there was a marginal increase in real wages, rising from Rs 12,847 in 2017-18 to Rs 13,006 in 2023-24. However, the growth in urban wages was sluggish, particularly for non-salaried workers.
The decline in real wages has occurred despite a significant surge in corporate profits. The corporate profit to GDP ratio reached a 15-year high in 2023-24, with the profit-GDP ratio of Nifty 500 companies increasing to 4.8% from 4% in the previous year.
Chief economic advisor V. Anantha Nageswaran attributed the slow economic growth to low wage growth, which has impacted purchasing power and, in turn, the manufacturing sector.
“From 2.1% of GDP to 4.8% of GDP is an impressive growth of the last just three years post Covid, but in comparison both hiring and compensation growth rate have been somewhat on the lower side or tepid. And that is also somewhat endogenous in creating less purchasing power in the hands of people, less demand for FMCG goods and light consumer durable goods. That is why you see the impact of that on manufacturing to some extent,” Nageswaran was quoted as saying by Deccan Herald.
Meanwhile, the GDP growth slowed to 5.4% in the July-September period, the slowest pace in seven quarters, primarily due to sluggish manufacturing activity.
Also read: GDP Growth Slows to 5.4% in Q2, Lowest in Seven Quarters
The manufacturing sector growth during the period was at a six-quarter low of 2.2%. Growth in private final consumption expenditure declined to 6% in Q2FY25 from 7.4% in the previous quarter, largely due to a slump in urban demand.
The slowdown in urban demand has also affected the fast-moving consumer goods (FMCG) sector. According to industry executives, FMCG growth has been sluggish in October-November, with overall growth rates estimated to be around 4-5%. Volume growth is around 3%, and price growth is around 1-2%, Financial Express reported.
Speaking to FE, executives from major FMCG companies, including Dabur India, Parle Products, Hindustan Unilever, Nestle, Britannia, and Tata Consumer, have all indicated that the urban slowdown is a major concern. They attribute the sluggish growth to a combination of factors, including increasing real estate costs in cities, food inflationary pressures, and a slowdown in wage growth.
The middle class, which is a significant driver of FMCG demand, is feeling the pinch. “The middle class of the country seems to be shrinking,” Suresh Narayanan, chairman and MD of Nestle India told FE.
