Sluggish Salaries and Economic Slowdown in India

Source: The article on Sluggish Salaries and Economic Slowdown in India is based on article “What sluggish salaries and slowdown in Indian economy might mean” published in India Express on 13^th December 2024.

UPSC Syllabus topic: GS Paper 3- Indian Economy

Context: The article addresses the challenges faced by the Indian economy, emphasizing sluggish salary growth and a broader economic slowdown.

What does the slowdown in the Indian economy and sluggish salaries indicate?

1. The Indian economy is facing a significant slowdown, which is reflected in sluggish salary growth and weak employment generation.
2. The government and economists have raised concerns over subdued household consumption driven by low wage growth and inflation.

What are the government’s observations regarding the economic slowdown?

1. The finance ministry flagged challenges like a slowdown in urban demand in its monthly reviews for August and September.
2. The second quarter GDP data revealed a deeper slowdown than expected.
3. The government has questioned the Reserve Bank of India’s (RBI) optimistic growth projections and its assessment of inflation and monetary policy.

What are the findings on wage growth across key sectors?

1. A study by FICCI and Quess Corp Ltd highlights low single-digit wage growth in six sectors: IT, Retail, Logistics, FMCG, Banking and Financial Services and Engineering, Manufacturing, and Infrastructure
2. After adjusting for inflation, real wage growth has been negligible or negative.
3. Rural real wages declined by -0.4% in the five years ending 2023-24, and agricultural wages grew marginally by 0.2%.
4. In the first five months of 2024, rural real wage growth was 0.5%, and agricultural wages grew by 0.7%.

What impact do these trends have on household consumption?

1. Weak income growth, inflation, and inadequate job creation have suppressed household consumption.
2. Concerns have been raised over the declining share of national income accruing to labor, particularly to less-skilled workers.

How does the employment generation relate to the economic slowdown?

1. Despite decades of steady growth, the economy has failed to generate sufficient productive and remunerative jobs for the growing labor force.
2. In 2023-24:
   • 46% of workers were employed in agriculture.
   • 79% of non-farm workers were in informal sector enterprises.
3. Labor force participation (ages 15 and above) increased from 49.8% in 2017-18 to 60.1% in 2023-24, but job quality remains a concern.

What role does capital intensity play in employment challenges?

The growing capital intensity of production has limited the creation of labor-intensive jobs, further exacerbating unemployment and underemployment.

Can interest rate cuts alone address the slowdown?

1. While monetary policy adjustments, such as interest rate cuts, can provide short-term relief, they are not sufficient to address structural issues.
2. Tackling the long-standing economic challenges requires comprehensive reforms and sustainable solutions.

What is the way forward for the Indian economy?

1. The focus should shift to creating productive, high-paying jobs.
2. Policymakers need to address inflation, improve labor income distribution, and boost consumption.
3. Reforms targeting informal employment and labor-intensive sectors are essential for long-term economic stability.