What business data tells us about income inequality in India
The boom in Indian corporate profits during a pandemic has attracted a lot of attention in recent weeks. But the aggregate profit numbers seem to hide more than they reveal. The top decile (or top 10%) of around 3,000 listed companies accounted for more than 95% of profits in the first nine months of fiscal 2021, according to data compiled by the Center for Monitoring Indian Economy (CMIE) . Data for the last quarter is not available for a comparable sample of companies, but the available sample suggests that the general trend has not changed.
Across industries, India’s largest companies were able to limit revenue losses and in many cases even increase market share as cash-strapped small businesses struggled. Large companies generated larger revenues and profits even before the pandemic. But the gap between the biggest companies and the rest has never been greater than it is today.
Unsurprisingly, this divide also appears in their payroll. The top decile’s payroll saw a slight decline in the June 2020 quarter, when India went through one of the toughest shutdowns in the world. But it fell into positive territory the following quarter and rose 5% (in nominal terms) in the December quarter. Compare that with the bottom decile (or the smallest 10%). This set of companies saw a 16% year-on-year decline in nominal wages in the June 2020 quarter and there was no recovery. Wage cuts only intensified over the next two quarters. Even for companies that are slightly larger than this set, wages have seen double-digit declines throughout the past year.
Overall corporate payrolls only experienced a slight decline in nominal terms (-0.4%) in the first nine months of FY2021, but in inflation-adjusted terms, this translates to a decrease of 6.6% compared to the period of the previous year. For small businesses, the decline in real wages is much more pronounced. The larger companies may have been able to protect their employee base, but the rest have either cut wages, laid off employees, or used a combination of the two to lower labor costs.
The fall in real wages follows a decade of already sluggish wages. Compared to the wage boom in the 2005-11 period, wage growth fell sharply in the post-2011 period, according to a wide range of wage data.
To some extent, the slowdown in wages mirrors the post-2011 slowdown in almost every economic indicator, as corporate debt levels have skyrocketed and investment has dried up. Lack of new investment meant fewer jobs. A weak labor market translated into moderate wage increases. The pandemic has only added to the gloom.
Even during the wage boom before 2011, not all workers earned equally. The decline of unions since the 1980s and the growing reliance on contract workers resulted in the labor market largely turning into a buyer’s market, leaving blue-collar workers to accept the wages on offer. As in the West, âoutsourcingâ has also helped companies keep wages under control here. But the âoutsourcingâ model here has relied on contract domestic workers, who can be made redundant without too much trouble, rather than foreign workers. As in the West, a tiny fraction of educated white-collar workers have benefited from increased productivity and growth. So even though the wages of blue-collar workers have barely budged, the salaries of managers – who make up less than 10 percent of the industrial workforce – have risen rapidly.
Across the economy, well-paying jobs are scarce. Only 4% of employees earn more than â¹50,000 per month, showed a Plain Facts analysis of data from the Periodic Workforce Survey (PLFS) 2017-2018.
During the pandemic, inequalities in the labor market only widened. People with low education suffered greater income and job losses than others, an analysis of data from a CMIE household survey by researchers at Azim Premji University (APU) showed. Vulnerable demographic groups – young workers and women – have experienced much greater job losses.
Almost half of salaried workers have switched to informal employment, entering the ranks of the self-employed and casual workers, suggests the APU analysis. The self-employed and temporary working-class workers suffered the biggest drop in income, forcing many households to cut back on diets and take out loans to survive.
The pandemic has been tough on everyone. But for informal workers and employees of small businesses on the brink of bankruptcy, the economic shock has been most catastrophic, the evidence shows.
(This is the third in a four-part series on how the pandemic is deepening economic inequality. first part examined the growing inequalities between countries and second part examined regional inequalities)
Tauseef Shahidi contributed to this play.
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