NEW DELHI: The anemic growth in private consumption has started to give jitters to the government as the chief economic advisor (CEA) to the Ministry of Finance Dr V Anantha Nageswaran on Thursday called for a balance between corporate profitability and workers’ income growth.
Speaking in an event organized by Assocham, the CEA noted that even as corporate profitability was at a 15-year high in FY24, much of this income was diverted by companies to reduce their leverage. He expressed concern that workers’ salaries have not grown commensurate with corporate profitability.
“While it is good to improve balance sheets, corporate profitability and workers’ income growth has to be balanced, without this parity, there will not be adequate demand in the economy for corporate products to be purchased,” said Nageswaran. The CEA emphasised on private sector large heartedness and the role corporates can play in propping up consumption.
“If consumption has to drive economic growth, then we must look at the post-Covid hiring trends, where there has been a shift to contractual labour. While these contracts are formal in nature – the workers receive employee benefits like provident fund and health insurance etc – but the wage growth for contract employees have not kept up with inflation,” CEA Nageswaran said.
CEA’s statement assumes significance as second quarter GDP growth in the current financial year fell to a 2-year low of 5.4% primarily because of slow private consumption and capex growth. In the second quarter, private consumption grew by 6%, down from 7.4% in the previous quarter. The Q-o-Q drop in consumption was despite a low base of 2.6% growth in the same quarter previous year.
Most FMCG companies had raised the issue of slowness in consumption growth due to very high inflation and stagnant wages. Many FMCG companies pointed out that they have been witnessing slow volume growth and in some even contraction.