Salary cuts may hit economic revival: Ind Ratings

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India Inc’s revenues came under pressure and corporates had to resort to salary cuts to protect their profits in the June quarter, due to the second wave of the Covid-19 pandemic that wreaked havoc across the country. According to a report by India Ratings and Research on Wednesday, the medium term economic recovery would be slow due to the weak wage growth and will affect household consumption. The level of spending and the overall demand could be impacted due to an environment of pandemic-led uncertainty and elevated inflation.

Though the resilience of corporates is encouraging, the adverse effect of pressure on employee cost is a cause for concern. This could be a result of job loss or salary cut or both, the report said.

Restoring wages critical

The study was done on the analysis of standalone financials of 2,036 non-financial corporates, with the entire sample split into eight buckets according to the size of the annual revenue in FY19. Compared to the fourth quarter in FY 21, half of the 2,036 companies have reported negative growth in labour costs in the first quarter of FY 22.

The report said that the trend has been on a downward spiral for the last couple of years which is visible in the yearly wage growth data in the last three years. This is more alarming, it added.

Owing to the disbursement of various performance-based payments linked to the previous fiscal, the quarter ending June was a better one compared to the March quarter. However, there were some seasonality in employee costs.

It said that the resuscitating wages will be critical for a revival of capital expenditure and overall economy, which has been languishing even before the Covid-19 outbreak.

The wage channel is more critical at a time when the countercyclical spending by the government has been designed to revive the production side rather than direct transfer to induce consumption demand, it said.

The number of companies that posted losses in first quarter of FY 22 were 523, which was lower than the first quarter in FY21 which was 986. This was largely due to limited restrictions on business activities in the second wave and corporates’ ability to learn and implement various measures to combat this kind of situation, according to analysis.