India’s corporate sector is revelling in a profit surge that’s capturing headlines — record earnings, soaring profit-to-GDP ratios, and boardroom celebrations that echo across the corridors of power. According to the Economic Survey 2024–25, corporate profits have surged to a 15-year high, with the profit-to-GDP ratio for Nifty 500 companies leaping from 2.1 per cent in FY23 to 4.8 per cent in FY24, the highest since 2007–08. However, this staggering surge in corporate earnings has not translated into proportionate wage increases for employees, raising serious concerns about income inequality and the long-term sustainability of India’s economic growth. The divergence between profits and wages is not merely cyclical but reflective of deeper structural transformations within the economy.
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At the heart of this transformation is India’s increasing reliance on capital-intensive industries — banking, financial services and insurance (BFSI), technology, and pharmaceuticals — to drive economic growth. At a basic level, wages are determined by the forces of labour demand and labour supply. When businesses expand and need more workers, they bid up wages to attract employees. However, as automation accelerates with AI and machine learning, capital intensive firms are investing in machines, robots, and artificial intelligence instead of hiring more workers to boost productivity. This shift means that even as businesses grow and profits soar, they do not need as many workers as before. Instead of moving outward — leading to higher wages and more employment — the labour demand curve is becoming flatter (more elastic). This structural shift exerts downward pressure on wages since firms can now scale up without significantly expanding their workforce.
Evidence of this transformation can be seen across industries. In the automobile sector, for example, companies like Toyota Motor Corporation, Maruti Suzuki, and Mahindra and Mahindra are increasingly using robotic assembly lines that require far fewer workers per vehicle produced. In large-scale manufacturing, AI-driven quality-control systems are replacing human inspectors. Even in services, automation is changing the landscape. Banking and customer-service roles, once dependent on large teams of workers, are increasingly being handled by chatbots and AI-driven platforms. These changes have allowed businesses to increase efficiency and profits, but they have also weakened the bargaining power of workers, keeping wages from rising as they once did.
The effects of this trend are amplified by the underperformance of labour-intensive industries. In a well-functioning economy, workers displaced by automation in one sector would be absorbed by growth in another. Traditionally, labour-intensive manufacturing played this role in India, providing employment for workers with lower skills. But these industries are struggling. India’s share in global textile and apparel exports has been shrinking, while countries like Bangladesh and Vietnam have expanded their market share. Burdened by complex labour regulations and rising production costs, many Indian firms have been unable to compete with these emerging manufacturing powerhouses. The result is a labour market in which demand for workers is not keeping pace with the supply of job seekers, keeping wages subdued.
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The growing wage-profit disparity has broader economic implications. India’s economy has long been driven by domestic consumption, with household spending accounting for nearly 60 per cent of GDP. But if wages for the majority of workers remain stagnant while corporate profits surge, the purchasing power of most consumers will weaken. High corporate earnings may be good for stock markets and business owners, but they do not translate into robust demand for goods and services if the majority of workers do not see their incomes rise. This imbalance could eventually slow down economic growth itself, as seen recently in India, where weak wage growth has constrained household demand. While tax cuts on earnings, like the one proposed in the Union budget 2025, could be seen as a temporary solution to this, it certainly cannot be expected to solve this issue permanently.
Addressing the wage-profit disconnect requires a thoughtful and balanced approach. The key is to ensure that technological progress not only drives higher profits for firms but also translates into wage and employment gains. As labour markets evolve, policies must equip workers with the skills needed to complement AI and automation, reducing their dispensability in capital-intensive industries. This calls for expanding vocational training, industry-linked apprenticeships, and digital literacy programs. Linking tax breaks and subsidies to firms’ employment commitments — rewarding investments in human capital alongside automation — can help align productivity gains with wage growth. Mandating a minimum reinvestment of profits into workforce development would further ensure that automation-driven efficiencies result in higher wages, not just higher margins.
Equally important is revitalising labour-intensive industries, particularly micro, small, and medium enterprises (MSMEs), which play a vital role in employment generation and industrial growth. Streamlining labour laws and reducing bureaucratic barriers will improve ease of doing business, while better credit access and targeted financial incentives can foster expansion. Encouraging digital adoption will enhance productivity, allowing MSMEs to compete more effectively in a tech-driven economy. Strengthening supply chains through improved logistics infrastructure and market linkages will further boost resilience. Additionally, policies that promote entrepreneurship within these industries can help sustain employment and drive long-term economic growth.
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The 2025 Union Budget advances these goals with several key measures: National Centres of Excellence for skill development, IIT expansion, ITI upgrades, targeted support for labour-intensive sectors, revised MSME classification thresholds to spur growth, and a Mutual Credit Guarantee Scheme for collateral-free machinery loans for small businesses. However, effective implementation remains crucial
Ultimately, India’s current economic trajectory is a double-edged sword. The rise of automation and capital-intensive growth has made businesses more profitable and globally competitive, but it has also weakened the link between growth and wages. If these trends continue unchecked, they could lead to rising inequality and social instability. However, with the right policies, India can navigate this transition while ensuring that technological progress benefits a broad segment of society, rather than just a privileged few.
Roychowdhury is associate professor and head, department of economics, Shiv Nadar University, Delhi NCR, and Sharma is an independent researcher
