Speaking at Moneycontrol Global Wealth Summit, Neelkanth Mishra, Chief Economist at Axis Bank, and a member of the Economic Advisory Council to the Prime Minister (EAC-PM), explained that this gap is not simply a result of companies being unwilling to share their profits but is driven by structural economic factors.
He pointed out that at this stage of economic growth, most economies experience rising inequality. “We have significantly increased the number of women who want to participate in the labour market, but the number of jobs that we can provide can only grow at 1% or 2%, and therefore, labour doesn’t have enough pricing power,” he noted.
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Meanwhile, capital remains scarce, making it a key driver of GDP growth. As a result, companies are investing more in expanding their businesses rather than increasing wages.
“So, if GDP grows at 7%, consumption will only grow at 4.5%. This is arithmetic, because most of the activity is happening on the investment side and within that the top 15-20% may grow at 8-10% but the bottom 70-80% may grow at 3%. That is the outcome you should expect if there is no intervention,” he said.
The government’s Economic Survey noted that while corporate profitability reached a 15-year high in 2023-24, wages have remained stagnant, impacting middle and lower-income households the most.
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Mishra pointed out that past efforts to reduce inequality, such as improving access to electricity, housing, and sanitation, helped boost overall economic participation. The next step could be ensuring access to cheaper capital, which may allow for broader income growth. However, wage disparities are unlikely to disappear quickly and income inequality could rise in the coming years before it gets better.
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