Aggregate wage bill of corporate sector exceeds public sector for first time

Compensation of employees (CoE) in the private corporate sector at Rs 30 trillion has exceeded the CoE of the public sector for the first time, ICICI Securities said in a report.

In FY23, the aggregate wage bill of the listed private corporate space expanded by a robust 17 per cent to reach Rs 11.5 trillion, driven by NBFC, private bank, IT, consumer discretionary, industrial and auto sectors.

Aggregate wage bill, or compensation of employees (CoE), of the entire private corporate space in the economy grew by a sturdy 21 per cent YoY in FY22 to reach Rs 30 trillion. This overtook the public sector wage bill  (Rs 28 trillion) for the first time, as per the National Accounts Statistics.

The rising trajectory of private corporate wage bill appears structural having grown from 9 per cent of GDP in FY12 to 13 per cent in FY22 as the formalisation effect takes effect. This has resulted in a 10-year CAGR of 14 per cent as against nominal GDP growth of 10 per cent.

A developed economy like the US has a private sector compensation of employees to GDP ratio of 45 per cent vs 13 per cent for India -- thus indicating significant runway ahead.

Private corporate wage bill growth over the past decade was driven by the twin effects of robust wage growth for existing employees (8-10 per cent as per salary surveys) and new additions to the formal workforce.

Rapid expansion of the formal workforce is corroborated by EPFO data (14mn net additions over the past 12 months) and rising personal income tax collections, the report said.

Key near-term risk to private corporate wage bill expansion lies in the significant weight of IT services in private corporate sector wage bill in India (42 per cent for the listed space) in an environment of slowing IT and tech start-up hiring, as well as slow wage increase in the near term. However, in terms of the number of employees, the IT/BPO sector accounts for just 12 per cent of the organised sector workforce, or 1 per cent of the overall workforce, the report said.

Informal job demand in urban India appears strong due to the cyclical recovery in investment rate, real estate, construction, leisure, hospitality, etc., which can potentially generate more informal jobs. Annual PLFS study indicates that, for a casual labourer in urban India, the daily wages increased from Rs 385/day in Q2FY21 to Rs 464/day in Q1FY23.

Also, the monthly average income of a salaried person in urban India grew from Rs 20,030/month in Q2FY21 to Rs 21,647/month in Q1FY23.

Private surveys indicate strong demand for ‘blue collar’ jobs.