Mumbai, June 27 (FN Bureau) Continued muted hikes in employee cost despite strong profitability could limit aggregate Consumption, India Ratings and Research (Ind-Ra) said on Monday. The rating agency in an analysis said large corporates remained sluggish in increasing wages, despite a significant improvement in their cash flows and consequent deleveraging during FY21 and FY22 and this could impact consumption demand, if inflationary pressures remain elevated. ”A sustained weak demand would limit the ability of corporates to pass on price increases to end-consumers, affecting their top line and hence EBITDA generation.
Resultantly, the muted real wage growth since FY20 is expected to remain low in the next 12 to 18 months and turn negative in the medium term, driven by elevated inflationary pressures and constrained ability of most businesses to provide a material wage hike. In the backdrop of this, the agency expects broad-based consumption demand to remain sluggish, although the higher end of consumption demand will remain healthy,” it said. Ind-Ra analysed the FY22 financial results published by 2,098 companies. The companies were bucketed into nine broad segments depending on their sector and subsector. Banks, non-banks, trading and financial institutes were excluded from the calculation. The analysis did not consider new employee addition or reduction, which would have only strengthened our hypothesis.
The combined median growth rate of employee cost during FY22 was 13.1 per cent, highest during FY17-FY22. However, the upswing in growth was more of a statistical aberration, driven by the low base in FY21 due to the COVID-19 pandemic. IT led the pack with 17.9 per cent yoy growth in FY22, closely followed by luxury (mainly consisting of gems and jewellery and beverages and distilleries) 16.4 pc, commodity 13.4 pc and consumption 13.3 pc. Given the industry and sector dynamics within the infra and utility (mainly telecommunication and related services) sectors, the employee cost growth was lower at 5.9 per cent and 3.7 per cent yoy, respectively.