India’s corporate sector is caught in a curious contradiction. Even as business leaders lament a slowdown in demand, they remain reluctant to loosen the purse strings for their employees. Wage growth—a proven remedy for sluggish consumption—remains elusive for millions of workers in the formal sector. Instead, companies cite tepid revenue growth and margin pressures as justification for cost rationalisation, particularly through suppressed compensation.
But what Indian corporates often overlook is the self-defeating nature of this approach. Without rising disposable incomes, households have little room for discretionary spending—worsening the very demand slowdown firms complain about. From FMCG and consumer durables to real estate and automobiles, sector after sector has witnessed muted consumer interest. At the heart of this lies a vicious cycle: stagnant wages leading to weakened demand, further slowing growth, which then becomes the excuse to keep wages stagnant.
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The data behind the decline
Recent earnings data reveal the extent of this wage stagnation. According to a Business Standard analysis of 457 listed companies, employee compensation rose by a mere 4.8% in Q4FY25 compared with the same period a year earlier. This marks the fifth consecutive quarter of single-digit salary growth and the slowest increase in at least 17 quarters.
In absolute terms, these companies spent Rs 2.46 trillion on employee compensation in the January–March quarter, marginally up from Rs 2.45 trillion in Q4FY24 and Rs 2.38 trillion in Q3FY25. Crucially, salaries accounted for a smaller share of net sales—12% in Q4FY25, down from 12.14% a year earlier and below the five-year average of 12.6%.
Yet these same companies boasted a combined market capitalisation of Rs 199.5 trillion, representing nearly half of the total value of all firms listed on the BSE. The financial muscle exists—but its distribution remains lopsided.
When profits outpace pay
Last year, Chief Economic Advisor V Anantha Nageswaran warned that while India Inc is reaping record profits, employee compensation is being left behind. Post-Covid, listed firms’ post-tax profits have risen to 5.2% of GDP—a level not seen since the boom years of 2007–08. For Nifty 500 companies, this figure stands at 4.8%, rising sharply in the last three years.
Meanwhile, employment growth in the formal sector has been weak, and even those employed have seen negligible real wage gains. A report by Motilal Oswal Financial Services found that profits of Nifty 500 firms grew at a staggering 34.5% per year between 2020 and 2024—while GDP grew at a modest 10.1%.
The growing gap between corporate prosperity and worker pay is not just a statistical aberration—it reflects a broader trend of inequity. Economists have also flagged this imbalance, noting that while GDP grew at an average of 6.7% from FY22 to FY24, regular wages actually contracted by 0.07%, according to government’s own Periodic Labour Force Survey (PLFS).
Cracks in consumption
The impact of this wage suppression is now evident in consumption patterns. Urban demand is softening, and discretionary spending—particularly on high-ticket items like automobiles—is under strain. The IT sector, once a key employment generator, has been in hiring freeze mode for two years. Now, banks and financial institutions are also scaling back, citing tepid credit demand, margin compression, and rising defaults.
Unlike previous quarters where IT majors such as TCS, Infosys, and Wipro led the wage deceleration, the current trend is being driven by the banking, financial services, and insurance (BFSI) sector. Together, BFSI and IT services account for a staggering 78% of total employee compensation among listed firms.
The 4.8% rise in wages closely mirrors the 6.4% growth in net sales for the sampled companies in Q4FY25—the slowest in six quarters. Net profit growth too remained subdued at 6.7%. If these trends continue, FY26 may mark the eighth consecutive quarter of single-digit revenue growth since June 2023.
Even leading FMCG companies like Nestlé and Hindustan Unilever have reported stagnant or declining sales—despite the peak festival season in September-October. This underperformance during a traditionally high-spending period signals that broader consumer sentiment remains weak.
Wage growth: Policy measures aren’t enough
The government has introduced several measures to stimulate consumption—rationalising tax slabs, increasing welfare spending, and boosting rural employment. But unless the private sector steps up with fair and meaningful wage hikes, these policy efforts will have only a limited impact.
A report by WorkIndia highlights the crisis at the lower end of the wage spectrum: over 57% of blue-collar jobs in India pay less than Rs 20,000 per month. While low productivity is often cited as justification, this argument glosses over the structural trap India finds itself in—low skills, low wages, low consumption, and in turn, low investment in human capital.
India’s ambition of becoming a developed economy hinges not just on GDP growth but on inclusive prosperity. Fair compensation is not merely a moral imperative—it is essential for sustaining domestic demand, ensuring economic resilience, and fostering social cohesion.
If India Inc wants to see its topline grow, it must begin by investing in the people who make that growth possible. Equitable wage growth is not a cost—it is an investment in India’s economic future.