Slow pace of pay growth adds to hurdles in way of India’s economic recovery
Joblessness may be easing in India as the economy gradually reopens from the world’s biggest lockdown, but wage growth remains subdued — dashing hopes of a recovery in the consumption-driven economy.
Wage bills of companies increased by just 2.9 per cent in the three months to June from a year ago — the slowest growth in 18 years, according to a separate analysis of 1,560 listed companies by Mumbai-based private research firm Centre for Monitoring Indian Economy Pvt.
CMIE estimates the jobless rate fell to 7.4 per cent in July from a record 23.5 per cent in April, the height of coronavirus-related curbs. Slowing wage growth risks squeezing private spending in Asia’s third-largest economy, where consumption accounts for about 60 per cent of gross domestic product. India’s GDP will shrink 4.5 per cent this year as a result of the pandemic, according to the International Monetary Fund.
“If you look at the manufacturing sector, wages declined by 7 per cent. So that’s a deep gash,” Mahesh Vyas, managing director of CMIE, said by phone. He doesn’t see wage growth going back to pre-Covid levels in the “foreseeable future” as “the economy is facing a serious problem of contraction of income.”
The lockdown’s damage to the economy will be reflected in quarterly GDP data due Aug. 31. Economists in a Bloomberg survey predict a 19.5 per cent contraction in the three months through June.
“Given the structure of labor markets, we believe that most of the pre-pandemic jobs will return, but the wage outlook is likely to be dimmer compared to the pre-pandemic world,” HSBC Holdings Plc analysts, led by Pranjul Bhandari in Mumbai, said in a report last month.