“Who gained from Covid?”
This could be a rather perverse question yet there are sections which benefitted from the pandemic.
Among them are Indian industrialists who saw their combined profits grow by 27.6% CAGR during FY20-23, against growth of barely 9.2% in total emoluments paid to the employees (referred as total wages, hereon).
Yes, those numbers are correct. Emoluments grew 9.2% CAGR, while profits grew 3x that rate.
So, is there something sinister happening here? Perhaps not.
You see, in the previous 12-year trend profits grew by barely 3.9% against wages growth of 13.7%.
So perhaps we are just reverting to the mean here. But there is more.
The figures here correspond to total emoluments and not wages per person. Given employment growth of 3-4 percentage points, it would point to even lower growth in wage per person.
This analysis is based on the data from annual survey of Indian industries (ASI) carried out by National Statistical Office (NSO). This survey shows several trend reversals in wages-profits dynamics. The survey data is available from the year 1981-82 till 2022-23.
The profits vs wage growth picture over the years
In terms of absolute value, total wages and profits stood at Rs 6,777 crore and Rs 3,396 crore respectively in 1981-82, rising to Rs 6.4 lakh crore and Rs 9.8 lakh crore respectively by 2022-23. The analysis shows near similar growth in both wages and profits at 13.6% and 14.1% from 1981-82 to 1992-93, the pre-liberalization era. Call it an impact of unionism, labour got the bigger share of the pie with wages accounting for almost two-thirds of total payout (total wages plus profits).
With the onset of liberalization and a pick-up in economic activity, profits growth rose sharply to over 30% over the next five years (FY93-98), even as total wages growth remained nearly the same.
The next four years (FY98-2002) saw a global recession, including in India, as a result of South East Asian crisis. While total wages declined by 0.6% CAGR during this period, profits fell more sharply by 11%. Note that the decline is because of lower employee count and not wages per person which recorded a marginal increase of 6%.
The trend reversed in FY02 with the economic revival, possibly, triggered by the initiation of Golden Quadrilateral project by the Vajpayee government, with corporate profits soaring by 43% during the next six years (FY02-08), the highest across all periods. Wages growth also improved to 12.8%, a reversal from the recession period, yet, slightly lower than the pre-recession period. Note that the profits growth shows sharp fluctuation across periods even though wage growth has shown less variation.
The next five years (FY08-13) saw an increase in labor clout again, possibly, a result of MGNREGA which provided workers an alternate avenue, forcing companies to pay higher remuneration to retain/ attract labour. Total wages saw a sharp growth of 17.7% during the period, the highest across all periods, against relatively muted growth of 8.3% in profits.
With a downturn in the economy, a result of policy paralysis, stress in several sectors such as real estate, highways construction etc and rise in banks’ NPAs, while profits growth plunged to 0.8% during FY13-20, wage growth still remained reasonable at 11%. Share of wages in total payout, which stood at two-thirds in the base year, fell to its lowest at about one-fourth in FY08, increased to half by FY20, placing both on equal footing, but has fallen again to 40% by FY23 with the reversal since Covid. Going by the current trend, it could still be some years before the trend could change in the favor of labour.
Who’s more productive?
The labour productivity verses capital productivity – the two factors of production have always been a matter of debate on the relative importance of each. As an economy with ample availability of labour, return on labour in India has largely been less than that on capital although, to be fair to the capitalists, much less volatile than profits.
It would also be pertinent to look at the profit per unit of capital which stood at 16.6% in the base year, which after several fluctuations, rose to a high of 36% in FY08. After declining to 13% in FY20, this has risen again to 21% in FY23. A Return on Equity (ROE) equal to that in the base year, which would mean more money being allocated for wages et cetera thus reducing the high return on equity currently, would have meant 33% increase in total payout to the workers in FY23.
Inflation eats away most of the growth
In terms of wages per person, long term (FY82-FY23) growth rate stands at a reasonable 9.4%. However, inflation rate of 7.3%, based on consumer price index for industrial workers as per the RBI data base, does not leave much surplus for them.
Another important point to note is the declining share of blue collared workers in thetotal emoluments, falling to 47% from a high of 65% in the base year, a result of increasing automation and greater dependence on white collar resources for factory operations also.
Note that the data refers only to industries and does not include service sector.
Ashish Agrawal, Author of the book “Indian Economy & Business – Overview of Recent Trends & events”
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