Indian private sector's wage bill surpasses government's for the first time in FY23

• Aggregate private sector’s wage bill at Rs 30 trillion surpasses government’s wage bill for the first time in FY23.
• Wage bill of India’s listed companies expanded by 17% to Rs 11.5 trillion in FY23.
• Growth in wages was largely driven by NBFCs, IT, private banks, consumer discretionary and auto sectors.
• Recovery in wages in the informal sector is key, as rural wages have continued to languish till early FY23.
  

The private sector has been the engine of job creation over the past few decades, but the wage bill of the government has been bigger so far. This has changed in FY23, as the wage bill of the private sector at Rs 30 trillion has for the first time surpassed the government’s Rs 28 trillion wage bill. What this suggests is that the private sector is adding new jobs thanks to the robust economic growth print over the last decade.

A study done by ICICI Securities also shows that the rising trajectory of private corporate wage bills appears to be structural “having grown from 9% of GDP in FY12 to 13% in FY22 as the formalisation effect takes effect.”

This is not the only good news. The ratio of the private sector’s wage bill to GDP for developed economies is as high as 45% but this is only in the mid teens in India. What this suggests is that there is significant room for India to create more jobs in the private sector as the economy continues to formalise. So far the job creation in the formal sector has been led by IT services. The IT sector accounts for 42% of the wage bill of listed companies. Any slowdown in the hiring or wages of this sector will be a drag on overall compensation by the private sector.

Sectoral breakdown

An analysis done by ICICI Securities suggests that In FY23, the aggregate wage bill of the listed private corporate space expanded by a robust 17% to reach Rs11.5 trillion, which was driven by NBFC, private bank, IT, consumer discretionary, industrial and auto sectors. While the IT sector accounts for 42% of the wage cost of listed companies, employees of BPO and IT services only account for 12% of the organised sector’s workforce.

In FY23, the wage bill of listed companies rose by a robust 17% to Rs 11.5 trillion. Once again this wage growth was driven by NBFCs, private banks, IT services, consumer discretionary, industrial and auto sectors. In FY23, 14 million new employee provident fund accounts were added.

While the private sector’s job creation is good news for the government’s coffers, it is the informal sector that creates jobs for the economy at large. The non-agri informal workforce accounts for 72% of jobs. If one includes agricultural jobs in this bucket, then the informal sector accounts for 85% of the workforce. According to the Economic Survey of FY22, the informal sector accounted for 89% of the workforce.

Since the effects of the pandemic started easing, wages in the informal sector too have been on the rise. According to the periodic labour force survey (PLFS), the daily wages of an urban daily wage worker was at Rs 385/day in Q2FY21, which increased to Rs 464/day in Q1FY23.

The wage growth was healthy also for the formal sector, where salary rose from Rs 20,030 per month in Q2FY21 to Rs 21,647 in Q1FY23. Blue collar job vacancies have been steadily rising since 2022 as the economy has opened up completely after the pandemic lockdowns. Also the demand for gig workers is on the rise too. This is the story of urban India, but monthly wages in rural India have continued to stagnate at Rs 14,700 for the 18-month period ending Q1FY23 as per the annual PLFS survey.

The biggest job creators in the listed space will be companies operating in sectors such as real estate, services, discretionary consumption, auto and those that stand to benefit from an uptick in the capex cycle. In contrast, rural India continues to give mixed signals as economists are not yet clear on the impact that erratic rains may have on wages and agri output in the ongoing kharif season.