[Answered] Stagnant wages and disproportionate growth challenge India’s economic balance. Critically analyze how these economic trends impact social equity, household well-being, and the goal of an inclusive society.

Introduction

Economic growth in India has touched impressive figures — 7.6% GDP growth in FY2024 — but when the benefits are unevenly distributed and real wages stagnate, macroeconomic stability risks masking deep-rooted social and economic disparities.

The Wage–Inflation Disconnect

1. Real wage stagnation: While nominal wages have grown — e.g., 9.2% in 2023 — real wage growth was only 2.5% due to inflation erosion. In 2020, real wages even turned negative (-0.4%).
2. Food inflation impact: Persistent high food inflation (CFPI at 10.87% in Oct 2024) disproportionately affects lower-income groups, as food forms ~50% of their consumption basket.
3. Household strain: High inflation in essentials forces families to cut back on nutrition, education, and healthcare, undermining human capital development.

Inequality and the K-Shaped Recovery

1. Wealth concentration: Oxfam’s 2023 report found the richest 1% in India control over 40% of total wealth, while the bottom 50% own only 3%.
2. K-shaped recovery post-COVID-19: Urban, formal sector professionals, tech, and financial sectors recovered rapidly. Informal workers, rural labor, and MSMEs lagged behind.
3. Gini coefficient: Declined in formal taxable incomes (0.489 in AY13 to 0.402 in AY23) — but excludes vast informal sector inequalities.

Social Equity Implications

1. Education & health access: Stagnant wages reduce capacity to afford quality education and healthcare, reinforcing intergenerational poverty.
2. Social mobility: OECD data shows upward mobility in India is limited — it could take up to seven generations for the poor to reach mean income levels.
3. Social cohesion risks: Perceived unfairness in growth distribution can fuel unrest, as seen in protests over unemployment and price rise.

Household Well-being

1. Erosion of savings: NSSO data shows household savings rate has declined from ~23% of GDP in 2012 to ~19% in recent years.
2. Debt dependence: Rising consumer credit dependency for basic needs increases vulnerability to financial shocks.
3. Consumption slowdown: With wages stagnant, discretionary spending drops, slowing overall demand — a risk to sustained economic growth.

Fiscal Constraints and Policy Space

1. High public debt: ~81% of GDP, limiting capacity for expansive social spending.
2. Fiscal deficit: Projected to decline to 4.4% in FY26, but consolidation could reduce welfare expenditure unless revenues rise.
3. Crowding out effect: Heavy government borrowing may limit private investment, affecting job creation.

Policy Lessons & Correctives

1. Boost real wages: Strengthen collective bargaining and minimum wage enforcement. Invest in skill development to improve productivity-linked pay.
2. Address inflation volatility: Strengthen agricultural supply chains and storage to stabilise food prices.
3. Redistributive measures: Expand targeted social transfers and tax progressivity.
4. Support MSMEs and informal sector: Credit access, digitization, and formalization incentives to ensure inclusive growth.

Conclusion

India’s growth story risks fragility if stagnant wages and inequality persist. Inclusive prosperity demands policies that raise real incomes, broaden opportunity, and protect household well-being — not just headline GDP triumphs.