New Delhi, Jan 31 (FN Bureau) The corporate sector has come under flak for not generating enough employment opportunities despite substantial surge in their profits saying to secure long-term stability in any economy, a “fair and reasonable distribution of income” between capital and labour is imperative. Corporate profitability soared to a 15-year peak in FY24, fuelled by robust growth in financials, energy, and automobiles. Among Nifty 500 companies, the profit-to-GDP ratio surged from 2.1 percent in FY03 to 4.8 percent in FY24, the highest since FY08.
Large corporations, especially in non-financial sectors, significantly outperformed their smaller peers in profitability, observed the Economic Survey 2024-25 tabled in Parliament on Friday. “However, while profits surged, wages lagged. A striking disparity has emerged in corporate India: profits climbed 22.3 percent in FY24, but employment grew by a mere 1.5 percent,” the Survey said, adding despite Indian companies achieving a stable EBITDA margin of 22 percent over the last four years, wage growth has moderated. This uneven growth trajectory raises critical concerns.” “Wage stagnation is pronounced, particularly at entry-level IT positions,” the Economic Survey said in a hard-hitting observation. State Bank of India (SBI) analysis reveals that 4,000 listed companies recorded a modest 6 percent revenue growth. At the same time, employee expenses rose only 13 percent, down from 17 percent in FY23, highlighting a sharp focus on cost-cutting over workforce expansion.
While the labour share of GVA shows a slight uptick, the disproportionate rise in corporate profits—predominantly among large firms—raises concerns about income inequality. A higher profit share and stagnant wage growth risk slowing the economy by curbing demand, the Survey said. Sustained economic growth hinges on bolstering employment incomes, which directly fuel consumer spending, spurring investment in production capacity. To secure long-term stability, a fair and reasonable distribution of income between capital and labour is imperative. It is essential for sustaining demand and supporting corporate revenue and profitability growth in the medium to long run.
Japan succeeded in industrialisation and in becoming a developed economy, despite its defeat in WW II through a social contract between the government, the businesses and workers, write Matthew C. Klein and Michael Pettis in “Trade Wars are Class Wars” — “Japanese workers, consumers, and retirees all subsidised industrial development by overpaying for goods and services, by taking home a lower share of national output than their counterparts in the West, and by using a financial system designed to transfer purchasing power from households to businesses. Japanese companies returned the favour by upgrading the country’s manufacturing base, passing along productivity gains to workers, and refraining from excessive executive pay, while the government invested in top-tier infrastructure.”