India’s company sector is revelling in a revenue surge that’s capturing headlines — report earnings, hovering profit-to-GDP ratios, and boardroom celebrations that echo throughout the corridors of energy. In line with the Financial Survey 2024–25, company earnings have surged to a 15-year excessive, with the profit-to-GDP ratio for Nifty 500 firms leaping from 2.1 per cent in FY23 to 4.8 per cent in FY24, the very best since 2007–08. Nevertheless, this staggering surge in company earnings has not translated into proportionate wage will increase for workers, elevating severe issues about earnings inequality and the long-term sustainability of India’s financial development. The divergence between earnings and wages shouldn’t be merely cyclical however reflective of deeper structural transformations inside the economic system.
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On the coronary heart of this transformation is India’s rising reliance on capital-intensive industries — banking, monetary companies and insurance coverage (BFSI), know-how, and prescription drugs — to drive financial development. At a primary stage, wages are decided by the forces of labour demand and labour provide. When companies broaden and wish extra employees, they bid up wages to draw staff. Nevertheless, as automation accelerates with AI and machine studying, capital intensive corporations are investing in machines, robots, and synthetic intelligence as a substitute of hiring extra employees to spice up productiveness. This shift signifies that whilst companies develop and earnings soar, they don’t want as many employees as earlier than. As a substitute of shifting outward — resulting in larger wages and extra employment — the labour demand curve is turning into flatter (extra elastic). This structural shift exerts downward stress on wages since corporations can now scale up with out considerably increasing their workforce.
Proof of this transformation will be seen throughout industries. Within the vehicle sector, for instance, firms like Toyota Motor Company, Maruti Suzuki, and Mahindra and Mahindra are more and more utilizing robotic meeting traces that require far fewer employees per automobile produced. In large-scale manufacturing, AI-driven quality-control programs are changing human inspectors. Even in companies, automation is altering the panorama. Banking and customer-service roles, as soon as depending on giant groups of employees, are more and more being dealt with by chatbots and AI-driven platforms. These modifications have allowed companies to extend effectivity and earnings, however they’ve additionally weakened the bargaining energy of employees, protecting wages from rising as they as soon as did.
The consequences of this pattern are amplified by the underperformance of labour-intensive industries. In a well-functioning economic system, employees displaced by automation in a single sector can be absorbed by development in one other. Historically, labour-intensive manufacturing performed this function in India, offering employment for employees with decrease abilities. However these industries are struggling. India’s share in international textile and attire exports has been shrinking, whereas nations like Bangladesh and Vietnam have expanded their market share. Burdened by complicated labour rules and rising manufacturing prices, many Indian corporations have been unable to compete with these rising manufacturing powerhouses. The result’s a labour market during which demand for employees shouldn’t be protecting tempo with the availability of job seekers, protecting wages subdued.
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The rising wage-profit disparity has broader financial implications. India’s economic system has lengthy been pushed by home consumption, with family spending accounting for practically 60 per cent of GDP. But when wages for almost all of employees stay stagnant whereas company earnings surge, the buying energy of most shoppers will weaken. Excessive company earnings could also be good for inventory markets and enterprise house owners, however they don’t translate into sturdy demand for items and companies if the vast majority of employees don’t see their incomes rise. This imbalance may ultimately decelerate financial development itself, as seen not too long ago in India, the place weak wage development has constrained family demand. Whereas tax cuts on earnings, just like the one proposed within the Union funds 2025, might be seen as a brief answer to this, it definitely can’t be anticipated to unravel this concern completely.
Addressing the wage-profit disconnect requires a considerate and balanced strategy. The hot button is to make sure that technological progress not solely drives larger earnings for corporations but in addition interprets into wage and employment positive factors. As labour markets evolve, insurance policies should equip employees with the talents wanted to enhance AI and automation, decreasing their dispensability in capital-intensive industries. This requires increasing vocational coaching, industry-linked apprenticeships, and digital literacy packages. Linking tax breaks and subsidies to corporations’ employment commitments — rewarding investments in human capital alongside automation — will help align productiveness positive factors with wage development. Mandating a minimal reinvestment of earnings into workforce growth would additional be certain that automation-driven efficiencies end in larger wages, not simply larger margins.
Equally vital is revitalising labour-intensive industries, notably micro, small, and medium enterprises (MSMEs), which play a significant function in employment technology and industrial development. Streamlining labour legal guidelines and decreasing bureaucratic limitations will enhance ease of doing enterprise, whereas higher credit score entry and focused monetary incentives can foster growth. Encouraging digital adoption will improve productiveness, permitting MSMEs to compete extra successfully in a tech-driven economic system. Strengthening provide chains by means of improved logistics infrastructure and market linkages will additional enhance resilience. Moreover, insurance policies that promote entrepreneurship inside these industries will help maintain employment and drive long-term financial development.
The 2025 Union Finances advances these targets with a number of key measures: Nationwide Centres of Excellence for ability growth, IIT growth, ITI upgrades, focused assist for labour-intensive sectors, revised MSME classification thresholds to spur development, and a Mutual Credit score Assure Scheme for collateral-free equipment loans for small companies. Nevertheless, efficient implementation stays essential
In the end, India’s present financial trajectory is a double-edged sword. The rise of automation and capital-intensive development has made companies extra worthwhile and globally aggressive, but it surely has additionally weakened the hyperlink between development and wages. If these tendencies proceed unchecked, they may result in rising inequality and social instability. Nevertheless, with the suitable insurance policies, India can navigate this transition whereas guaranteeing that technological progress advantages a broad section of society, moderately than only a privileged few.
Roychowdhury is affiliate professor and head, division of economics, Shiv Nadar College, Delhi NCR, and Sharma is an unbiased researcher
