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Economic Survey projects impressive growth, but stagnant jobs and wages remain big challenge – Firstpost

Economic Survey projects impressive growth, but stagnant jobs and wages remain big challenge – Firstpost



The recently released Economic Survey 2024-25 presents a paradox. The Indian economy continues to clock impressive GDP growth, and corporate profitability has reached a 15-year high, yet wage growth remains tepid; capital is being raised through IPO but private sector capital expenditure is still lukewarm, raising critical concerns about the sustainability of this growth trajectory.

The growing disconnect between corporate earnings, employment expansion and wage growth is at the heart of this puzzle. According to the Survey, corporate profits surged 22.3 per cent in FY24, while employment in these firms increased by 1.5 per cent. In stark contrast, employee expenses saw only a 13 per cent rise, down from 17 per cent in FY23, indicating that firms focus more on cost-cutting than hiring. The Economic Survey is the opinion of economists and rarely connects with what the budget will or will not do; it is a parallel exercise to the budget and should be seen independently of what will happen when the Finance Minister presents the budget a day later.

The total resource mobilization from primary markets (equity and debt) stood at Rs 11.1 lakh crore from April to December 2024, reflecting a 5 per cent increase from the previous year. More importantly, this accounts for 25.6 per cent of gross fixed capital formation (GFCF), signalling healthy private investment activity. IPOs surged 32.1 per cent, increasing from 196 in 2023 to 259 in 2024, with a nearly threefold jump in capital raised—from Rs 53,023 crore to Rs 1,53,987 crore. This robust momentum starkly contrasts the post-pandemic slowdown in private investment witnessed in FY22 and FY23, when risk aversion dominated the corporate sector. The debt market, however, remains undercapitalised. While corporate bond issuances stood at Rs 7.3 lakh crore, making up a significant portion of private financing, India’s corporate bond market remains at just 18 per cent of GDP, compared to 80 per cent in South Korea and 36 per cent in China.

This Economic Survey also marks a shift in tone from previous editions. The Economic Survey 2022-23 was cautious, reflecting a landscape dominated by high inflation, global economic uncertainty, and rising interest rates. It focused on government-led investment and fiscal prudence to stabilise growth. The Economic Survey 2023-24 took a more optimistic stance, acknowledging structural reforms but warning of headwinds in private investment. The 2024-25 Survey, in contrast, strikes a balance between private capital revival and the persistent wage stagnation problem

Past Economic Surveys highlight different trends. The Economic Survey 2023-24 pointed to a sluggish private investment climate, emphasizing the need for greater policy support for MSMEs and start-ups, while the Economic Survey 2022-23 raised concerns over rising interest rates and global uncertainty, which led to a dip in fresh investments. However, the Economic Survey 2024-25 shows signs of a resurgence in private capital formation, backed by strong equity markets and corporate bond issuances. However, private greenfield investments are still below pre-pandemic levels.

The capacity utilization rate for manufacturing firms stood at 74.7 per cent in Q2 FY25, above the long-term average of 73.8 per cent, indicating strong industrial activity. The data suggests a steady recovery as manufacturers are scaling up operations to meet rising demand. A notable point is the 23.6 per cent YoY increase in order books of capital goods companies, which far exceeds the 4.5 per cent CAGR observed over the last four years. This jump signals a shift towards new investments in capacity expansion rather than merely running existing operations at higher utilisation rates. Historically, utilisation hovered around 70 per cent in FY22, with manufacturers reluctant to expand due to global inflation and weak domestic demand. FY23 saw an improvement to 73 per cent, supported by government-led capital expenditure. The jump to 74.7 per cent in FY24-25 is the strongest sign of industrial revival, supported by private investment recovery and an uptick in infrastructure spending.

Despite this improvement, challenges remain. Private greenfield investments are yet to reach pre-pandemic highs, indicating that businesses are still cautious about long-term commitments. While capital goods and infrastructure have grown substantially, consumer-oriented industries (FMCG, real estate) remain slow. Although bond market activity has risen, bank lending to the industry has not seen a proportionate rise, limiting faster expansion in investment cycles, maybe due to the high interest rates.

The Economic Survey 2024-25 suggests private sector investment is reviving but not booming. The stock market fundraising boom has provided businesses with capital, but deployment in new industrial projects remains uneven. Capacity utilization rates above 74 per cent indicate that companies may need fresh investment soon, which could kick-start a new private capex cycle in 2025-26. However, much depends on interest rates, global demand, and government-led policy incentives.

The Economic Survey projects real GDP growth of 7 per cent for FY25, marking another year of robust expansion. While this is commendable, the growth must be examined against wage trends and job creation. India’s past high-growth phases, such as 2003-08, witnessed higher employment elasticities, where growth translated into better wages and jobs. However, this time, despite profit-to-GDP ratios hitting 4.8 per cent—the highest since 2008—real wage growth remains mainly stagnant.

While nominal wages in agriculture and non-agriculture have risen by around 5-7 per cent annually, the actual wage increase (adjusted for inflation) remains below 2 per cent. Workers have minimal incremental purchasing power, leading to sluggish demand growth.

For instance, while self-employed workers saw nominal earnings increase from Rs 12,913 in FY18 to Rs 16,007 in FY24, inflation-adjusted (real) earnings tell a different story—they barely grew from Rs 9,454 to Rs 10,116. This is a serious concern, affecting the quality of life for a large segment of society, and is not a good sign for the economy either. Hence, there is talk of demand-led stimulus for this segment by cutting down taxes. Whether the FM does that in the budget will be revealed tomorrow.

One of the more intriguing arguments in the Survey is the concept of “enlightened self-interest” regarding job creation. The document subtly nudges businesses towards higher wage payouts by arguing that higher incomes fuel consumption, supporting corporate revenues. This is a soft form of socialism—where instead of the state enforcing wage hikes, the government is appealing to corporate conscience.

A classic free-market response would be that wages rise when productivity does. However, the current trend indicates that while corporate EBITDA margins have stabilised at 22 per cent over four years, wages, particularly in IT and manufacturing sectors, have stagnated. If capital continues to extract a disproportionate share of GDP growth, it will suppress demand and threaten long-term economic sustainability. But it is unlikely that corporates should listen to any talk of enlightenment as they will focus on profitability only.

The Economic Survey 2024-25 paints an optimistic picture of growth, but the disconnect between corporate profits, employment growth, and wages poses risks. Without higher wage growth, demand-side pressures will constrain long-term expansion. Policymakers must double down on deregulation for MSMEs, encourage fair income distribution, and focus on AI-driven skill development. Otherwise, India risks a top-heavy, capital-skewed economy that ultimately hurts both businesses and workers.

K Yatish Rajawat is a public policy researcher and works at the Gurgaon-based think and do tank Centre for Innovation in Public Policy (CIPP). Views expressed in the above piece are personal and solely that of the author. They do not necessarily reflect Firtspost’s views.



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