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

India Ratings and Research reports slow wage growth in Q1 2024-25, but expects acceleration, boosting personal consumption.

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 which could help boost personal consumption, India Ratings and Research (Ind-Ra) has said.

The rating firm’s analysis of the Periodic Labour Force Survey (PLFS) data, however, shows that real wage growth, after factoring in inflation, has been uneven with regular and salaried workers seeing a mere 0.4% uptick in Q1 this year, while wages contracted 0.9% for rural workers and 0.7% for self-employed workers. The average growth figure was propped up by a 2.4% rise in casual labourers’ real wages, the fastest in seven quarters.

This accompanied a deterioration in the quality of jobs over the past year, with Ind-Ra noting that the proportion of self-employed workers increased to the highest level of 57.7% of the workforce in Q1, even as the proportion of casual labourers declined to the lowest level of 19%. To put some context to these trends, the PLFS data has been available since 2017-18.

A closer look at the employment profile details in the PLF suggests the kind of jobs created are not of superior quality, the firm said in a research note, pointing to the share of regular wage or salaried workers remaining largely stagnant at 23.2% in 2023-24, compared with 24.1% in 2018-19.

“This indicates a shift in employment towards unstable jobs at a time when the GDP growth has been strong,” the research and rating firm said. Interestingly, the proportion of regular workers in urban areas has been stagnant at 48.7%, but improved to a five-year high of 13.8% in rural areas in 2023-24.

Paras Jasrai, senior analyst at India Ratings, said that though the average wage growth may seem prima facie insipid, it has been improving since a sharp 8.2% slump in the second quarter of 2023-24 when the poor monsoon had hit agricultural output.

“We expect it to improve further in the rest of FY25 due to a combination of favourable base effect, moderating inflation and an above-normal monsoon led progress in agricultural activity which would provide a boost to rural wages as well”, Mr. Jasrai said. The urban-rural wage differential reduced to a four-quarter low in Q1 and is expected to reduce further in the rest of this year.