‘Real wage growth recovery may accelerate and prop up consumption this year’

Contact Counsellor

Last Updated15/10/2024

Indian workers’ real wages grew at a tepid pace of 0.7% in the first quarter (Q1) of 2024-25, but this marked an improvement over an average contraction of 1.6% over the preceding 24 quarters, and growth is expected to accelerate over the rest of this year.

Indian workers' real wages grew at a modest 0.7% in the first quarter (Q1) of 2024-25, marking a recovery after an average 1.6% contraction over the previous 24 quarters, according to a report by India Ratings and Research (Ind-Ra).
While the improvement is notable, wage growth has been uneven across different sectors, raising concerns about the quality of jobs being generated and the broader implications for the economy.

The analysis based on the Periodic Labour Force Survey (PLFS) data reveals the disparity in wage growth across different types of workers:
- Regular and salaried workers saw only a 0.4% increase in real wages.
- Rural workers experienced a 0.9% decline in real wages.
- Self-employed workers faced a 0.7% contraction.
- On the other hand, casual laborers' wages grew by 2.4%, marking the fastest growth in seven quarters, which helped lift the overall average wage growth.

The data also highlights a shift in the employment landscape, with a rise in self-employed workers to the highest level of 57.7% of the workforce in Q1 2024-25. This trend, coupled with a decline in casual laborers to 19%, indicates a movement towards less secure forms of employment.
The proportion of regular wage or salaried workers has remained largely stagnant at 23.2% in 2023-24, compared to 24.1% in 2018-19.
Ind-Ra’s analysis suggests that the new jobs created during this period are not of superior quality, as they have not led to an increase in stable, well-paying positions.

Urban and rural wage trends present a mixed picture:
In urban areas, the proportion of regular workers has remained stagnant at 48.7%.
In rural areas, however, the proportion of regular workers increased to a five-year high of 13.8% in 2023-24.
This divergence highlights the ongoing challenges in improving rural wage stability, despite the strong economic growth in the urban sectors.

Despite the tepid start to the year, experts predict that wage growth will improve over the rest of FY25, driven by factors such as:

A favourable base effect from the previous year.
An above-normal monsoon boosting agricultural productivity, which is expected to uplift rural wages.
The urban-rural wage differential, which has reduced to a four-quarter low in Q1, is expected to narrow further as agricultural activity picks up.

The improvement in real wages is critical for stimulating personal consumption, which plays a vital role in driving household demand and private investment. However, while India's economy grew by a robust 8.2% in 2023-24, private consumption growth was subdued, rising only 4%, the weakest growth since 2002-03, excluding the pandemic-affected year of 2020-21.
Weak urban consumption has been flagged as a concern, with declining automobile sales and slowing fast-moving consumer goods (FMCG) sales in urban areas. Despite improvements in rural incomes, urban consumption has shown signs of weakness, as evidenced by a 18.8% decline in passenger vehicle sales in September 2024.
The Finance Ministry has acknowledged these trends and emphasized the need to monitor urban consumption, especially with the onset of the festive season.