Corporate profits up 4 times in 4 years but did salaries keep up? CEA’s message to India Inc – CNBC TV18

It is time corporates in India engaged in a good combination of employment and capital spending as compensation to employees has become weaker, Chief Economic Advisor V Anantha Nageswaran told India Inc on December 5.

“Profitability growth of corporates has been absolutely impressive, the truth is the corporate sector has never had it so good as in the last four years despite the challenging environment. However, compensation to employees has become weaker, corporates have used profits to deleverage,” CEA pointed out at an event in Delhi.

Nageswaran’s remarks come amid muted hiring trends and salary hike trends with only marginal increases in select sectors in the past few months though there have been some green shoots.

Pawan Goyal, Chief Business Officer, Naukri recently said, “We typically observe muted trends on white-collar hiring during the festive period and the 2% growth in November broadly reflects that. However, the combined October and November trends reflect good resilience. Additionally, the rise in non-IT fresher hiring is a good development with respect to younger talent.”

CEA Nageswaran noted that India’s large corporate sector has a negative working capital balance and it needs to reflect on it.

According to him, some of the hiring practices by the corporate sector need to be looked at as wage growth for contract employees in different sectors has not kept up with inflation.

He suggested that corporations need to make India the byword for quality. It is time for corporates to make a good combination of employment and capital spending. “We need to think big as the global environment is going to be extremely unhelpful.”

“Therefore, we need to have a compact within the country to hire better and skill our people. A better balance is needed by corporates in the share of profits going to workers and capital spending,” he said.

The CEA noted that consumption growth has been steady at about 60% with rural doing well while urban consumption has sagged a bit, which may be episodic or short-term. However, companies need to look at some of the hiring practices because if they shift more towards contract labour, it impacts consumption, he explained.

Wage growth for contract employees in different sectors has not kept up with inflation, he highlighted and added that corporate profitability going up by four times can be channelised for secular growth in consumption.

He also asserted that the government is working on improving credit ratings which will bring down the overall cost of capital.

The developments come at a time when India’s GDP growth for the July-September quarter plunged to a shocking 5.4%, the lowest since Q3FY23.

Private final consumption grew at 6% in Q2FY25, improving from 2.6% year-on-year but lower than the 7.4% sequential growth. Government final consumption, however, slowed to 4.4%, significantly below the 14% growth seen in the previous year, though rebounding from a contraction of -0.2% quarter-on-quarter.