Indian govt urges companies to raise salaries of employees

India's Chief Economic Advisor V Anantha Nageswaran, has made a compelling plea to companies to increase wages, as consumption has sharply declined, particularly among the middle and lower-income segments of society.

"Enlightened self-interest and long-term thinking require employers to realize that a safe, secure, and satisfactory workplace is key to long-term employee morale and productivity," the annual Economic Survey 2025 reported.

Presented to Parliament the day before the Union Budget, the report focused on stagnant wages during a period of 15-year-high corporate profitability.

According to SBI Research, the average employee expenses of 4,000 listed entities increased by 13% in 2024, while profit after tax surged by 31.7%.

"Despite Indian companies maintaining a stable EBITDA margin of 22% over the last four years, wage growth has moderated. This uneven growth trajectory raises critical concerns. Wage stagnation is particularly pronounced in entry-level IT positions," the report added.

Surjit Bhalla, former executive director representing India at the International Monetary Fund, disagrees with the Chief Economic Advisor’s assessment.

"There has been solid growth in the real wages of casual workers, but for salaried workers, primarily the middle class, there has been almost zero growth in real wages. This is the problem. Why don't they connect the two?" Bhalla said.

"If I were to make sense of this, there’s been a big expansion in supply. The market is accommodating it, but, as Economics 101 suggests, there’s not much rise in real wages. That’s the story. So, enlightened self-interest won’t change anything," Bhalla added.

Corporate profits have soared, but slower income growth and rising expenses are putting pressure on household budgets, especially for those lower on the economic scale.

In the most recent second quarter, ending in September 2024, the country’s economic growth was limited to 5.4% due to the decline in consumer spending.

Sanjiv Puri, Chairman of ₹5.6 lakh crore ITC Limited, disagreed with the argument.

"Wages cannot be linked to profitability. When profitability increases, the opposite does not occur," he said.

"Wages and profits are not inherently linked, but visualized self-interest is. The private sector can see a path forward where, if they invest, they expect returns. At the moment, they’re not seeing that for a variety of reasons," explained Rathin Roy, Professor at Kautilya School of Public Policy.