Key Points
- Indian companies are reducing salary spending.
- Real wage growth for listed non-financial companies fell to 0.8% year-on-year in Q2 FY25.
- This drop follows a decrease from 2.5% in FY24 and 10.8% in FY23.
- Tighter monetary policies and lower demand are key reasons for this trend.
- The RBI’s forecast of 7.2% GDP growth for FY25 may be too optimistic.
Looma News
Indian companies are cutting back on their salary spending, which could lower spending in cities, according to a recent Nomura report. The report states that real wage growth for listed non-financial companies, which reflects urban wages, has dropped to 0.8% year-on-year in Q2 FY25. This is down from 1.2% in Q1 FY25 and much lower than 2.5% in FY24 and 10.8% in FY23.
Nomura points to a mix of weaker salary growth and fewer workers as reasons for this slowdown. The surge in demand after the pandemic has also faded. Stricter monetary policies and the Reserve Bank of India’s (RBI) efforts to control unsecured credit have slowed down personal loans and lending growth among non-banking finance companies.
Nomura sees India’s economy facing a cyclical growth slowdown. They suggest that various indicators point to further declines in GDP growth. Their estimate for GDP growth in FY25 is 6.7%, while the RBI’s forecast of 7.2% might be too hopeful given the increasing risks.
Last week, the RBI Bulletin mentioned that indicators show a slowdown in the second quarter of 2024-25, with a temporary dip in economic activity. This slowdown is partly due to unique factors, like heavy rains in August and September. However, India’s overall growth outlook remains strong, backed by solid domestic factors and a potential bounce-back in demand with the upcoming festive season.
