Without a judicious balance between the share of corporations’ income making up their profits and that going to workers as wages, there won’t be adequate demand in the economy for companies’ own products to be bought, the CEA said. Sustained income growth bolsters both consumption and savings, which eventually spur economic expansion.
“In other words, not paying workers well or not hiring workers enough will end up being actually self-destructive or harmful for the corporate sector itself and for small enterprises,” Nageswaran said, stressing that even legendary economist Adam Smith had written The Theory of Moral Sentiments before his seminal work–The Wealth of Nations.
The CEA was speaking at Assocham’s Bharat@100 summit in the capital.
He said: “The most important ingredient of long term growth and consumption is to ensure employment income growth and, thus, spending power growth. Otherwise, it will become a mutually self-destructive cycle.”
Nageswaran lamented that large companies, instead of emerging as working capital providers to smaller ones, are in fact using small and medium enterprises as a source of their short-term finances by delaying payments to them for supplies of raw materials, etc.He also stressed the need to look at the shift in the hiring practices of the corporate sector (employing large numbers of contractual workers), as “there has been, what I call, a creeping informalization of the workforce” in the aftermath of the pandemic.“The truth is, the Indian corporate sector has never had it so good, as it has in the last four years, considering the kind of environment (Covid, geopolitical conflicts and other external headwinds) in which we operate,” Nageswaran said.
Profits of listed private firms jumped to 4.8% of GDP as of March 2024, highest since March 2008 when there was a global boom (before the financial crisis).
He acknowledged that companies have used a part of profits to deleverage and their balance sheets have turned healthier. So, now is the time for them to “engage in a good combination of capital formation and employment growth”.
The CEA also underscored the need for deregulations by the Union and state government to make the environment more conducive for businesses to scale up and flourish.
State governments, for instance, have imposed 180 restrictions on women joining what they think are hazardous occupations, at a time when women are flying commercial airlines, he said.
‘6.5-7% growth in FY25 achievable’
Nageswaran cautioned against over-interpreting the growth slowdown in the July-September period to a 7-quarter low of 5.4%, stating that the full-year growth rate will remain in the 6.5-7% range, as forecast by the Economic Survey. To reach 6.5% growth in FY25, the economy needs to grow at 7% in the second half, which is “doable”, he said.
“If you run through the checklist for the Indian economy, the health is pretty robust–whether it is external debt as a share of GDP, whether it is the non-performing assets in the banking system, and …overall inflation rates,” he added.
Unlike in the case of China and some other Asian countries, the backdrop of India’s bid to achieve sustained high growth rates to emerge as a developed country by 2047 faces the challenging global environment and the developed world’s push for rapid energy transition, he noted.
“Our aspirations are legitimate. Our size is very big, and the global environment is becoming more difficult, and therefore we within the country have to have a compact between businesses, government, academia and also technical institutions to skill our people, to hire better,” Nageswaran said.
He also indicated that robust merchandise export growth would be harder to achieve, given the subdued global demand, and energy transition should be pursued in a way that it doesn’t hurt the country’s growth.
“We need to understand that the global backdrop is far from conducive for us. Therefore, we need to pull all the domestic levers for growth,” he added.