Falling Wages Weakening India’s Economy as Consumer Spending Declines

India’s economy is in increasing trouble as wages slow, crimping consumers’ spending and weighing on business profits. In a dark sign, inflation-adjusted compensation for non-financial listed firms fell 0.5 percent in the July-September quarter, the first decline in more than two years following the pandemic. The lingering slowdown in wage growth in tandem with chronic inflation has piled up considerable financial pressure on India’s urban middle class despite the economy growing at 8 percent in the preceding fiscal year. 

This is weakening consumer demand, as households are cutting back on purchases from everyday essentials such as soaps to high-ticket items like cars. Major companies such as Maruti Suzuki and Hindustan Unilever have reported weaker-than-expected earnings, citing a decline in urban middle-class spending. About half of the firms in the NSE Nifty 50 Index missed consensus earnings estimates in the second quarter, highlighting the increasing financial stress among consumers. 

The broader impact on the economy is becoming evident. Household consumption in India-which accounts for around 60% of GDP-is expected to remain soft for several quarters, analysts say. Falling wages would force households to draw on savings or borrow more just to maintain current expenditure, they add. According to Motilal Oswal Financial Services, the prime cause behind weak consumer finances in the country is subdued income growth. 

This slowdown in growth of wage is further supported by limited gains in big industries. Major players, including the likes of Tata Consultancy Services and Infosys, who represent the more modern information technology industry, declined on cost of employees indicating more depth to the labor woes. Additionally, public spending targets which are largely seen as being key drivers also slipped for the government, this means there has been cut to forecasts of growth at India. The Reserve Bank of India now lowers Goldman Sachs’ GDP growth estimate for the current financial year from 7.2% to 6.4%. 

Rural consumption, though helped by a bumper harvest, remains lukewarm in urban areas. In the second half of the fiscal year, the government is likely to spend more but analysts believe that a quick turnaround might be delayed, and people may have high hopes for it. Because of this complicated mix, the Indian economy is also coming under pressure from various other challenges such as shrinking wages, weak consumer demand, and slow government expenditure.