Real Wage Growth Actually Decelerated In February and March: Systematix Group CEO

Chennai: The recent Labour Bureau data showed a 17 per cent spurt in rural wage growth in March 2026 against the usual levels of 5-6 per cent. However, Dhananjay Sinha, CEO and Co-head, Institutional Equities, Systematix Group, says this is an anomaly caused by flawed sampling and disproportionate weightage given to certain states. According to him, real wage growth has actually decelerated in February and March, while headwinds such as the West Asia crisis and El Niño could further weaken wage growth, affecting consumption, corporate sales and the broader economy. In this interview, he explains why India's wage growth has remained stagnant despite strong GDP growth, analyses the anomalies in the latest Labour Bureau data, and discusses the implications for employment, inequality and economic growth.

Before we discuss the latest Labour Bureau data, let us first look at the broader trend. India has been the fastest-growing large economy over the past decade. Theoretically, such growth should translate into strong real wage growth. How has wage growth actually performed over the last 10 years?

There is no single authentic dataset that comprehensively captures household income and wage growth, so we rely on multiple sources. One of the most useful is the Periodic Labour Force Survey (PLFS), which was restructured after 2018. If we analyse the PLFS data, we find that nearly 95-96 per cent of the working population has experienced largely stagnant wage growth over the last six to seven years. In rural India, inflation-adjusted wages have actually contracted. In the formal sector, income tax data shows average annual income has grown by around 6 per cent over the last decade. But after adjusting for inflation, real income growth works out to barely 1-1.5 per cent annually. At the same time, there has been a structural shift in employment. The contribution of formal manufacturing and formal services to employment has declined, while dependence on self-employment, agriculture and informal services has increased. Although productivity has improved in the formal sector through automation and technology, most workers outside these sectors have seen stagnant or declining real wages.

What explains this disconnect between India's strong GDP growth and weak wage growth?

The economy is officially growing at around 7-8 per cent, but this is not reflected in household incomes. One reason is the way GDP is measured. Under the revised GDP series with the 2022-23 base year, household consumption has been scaled down by roughly Rs 80 lakh crore over the four years ending FY26. If consumption is revised lower, household income is also lower. Therefore, while the headline GDP numbers look robust, the detailed components of GDP do not align with survey-based evidence on wages and incomes. There is a lack of coherence between the macroeconomic data and household-level realities, making it necessary to examine several other indicators to understand the true condition of wages and incomes.

You have studied the recent Labour Bureau data, which showed a sharp increase in rural wage growth in March 2026. You have pointed out several anomalies. What exactly did you find?

The March data showed rural wage growth of nearly 17 per cent compared to the usual 5-6 per cent, which immediately raised questions. We examined the historical data and found a similar unexplained jump of around 12.5-13 per cent between June and July 2025. After contacting Labour Bureau officials in Kolkata and Chandigarh, we learnt that the Bureau had significantly changed its sampling methodology. The survey now covers nearly 900 villages, with around 180 additional villages, and has expanded from 20 states to almost the entire country, including several northeastern states, Goa and Delhi. However, our analysis found that these newly added states and Union Territories together account for less than 1.5 per cent of India's rural workforce, yet they have been assigned nearly 11 per cent weight in the sample. These regions also have significantly higher average wages, with states like Kerala, Goa and Delhi reporting wages almost twice the national average. As a result, the revised methodology artificially inflated the overall average wage. Once we adjust for this distortion, actual year-on-year wage growth works out to roughly 4 per cent, down from around 6 per cent earlier. On a month-on-month basis, wage growth in February and March was just 0.18 per cent, translating into an annualised growth of only about 2-2.5 per cent. This indicates that wage growth has actually slowed despite the headline numbers.

Did you raise these concerns with Labour Bureau officials? How did they respond?

The officials acknowledged that the methodology had changed and argued that the old and new series are therefore not directly comparable. They cited expanded coverage of villages, states and occupations. However, our concern remains that when only around 900 villages are sampled out of nearly 1.6 lakh villages in India, assigning disproportionately high weight to states with very small rural populations creates a serious distortion in the estimates. We believe this is a flaw in the sampling framework.

We are now facing fresh challenges such as the West Asia crisis and the possibility of below-normal monsoons due to El Niño. How could these factors affect rural wages?

The conflict in West Asia has led to higher fuel and LPG prices, with informal LPG prices rising four to five times in some places. Combined with stagnant urban wages, especially among informal workers, this has made urban employment less sustainable and accelerated reverse migration to rural areas, a trend that began after COVID-19. This increases dependence on agriculture, leading to lower labour productivity per hectare and putting further downward pressure on wages. If El Niño results in weaker monsoons, as projected by the IMD, rural incomes will come under additional stress. An 8 per cent monsoon shortfall would significantly affect agricultural output, rural incomes and the overall economy, making timely government intervention essential.

Corporate profits have been growing much faster than employee compensation. Is India's growth becoming increasingly capital-intensive rather than labour-intensive?

The unemployment problem has persisted for over a decade despite promises of stronger job creation. Weak employment growth has constrained household incomes, consumption demand and private investment. While weak demand has also contributed to lower inflation and a narrower current account deficit, these headline improvements mask the underlying weakness in household purchasing power. Companies have increasingly relied on technology, automation and digitalisation to improve profitability. As capital deepening accelerates, labour becomes relatively less important. This explains why corporate profits have improved even as wage growth and employment quality have weakened. The economy has witnessed a structural shift towards lower-quality employment in agriculture and informal sectors.

If wage growth continues to lag behind corporate profitability, can the economy sustain high growth over the long term?

No. This creates a vicious cycle. Companies cannot indefinitely sustain profitability simply through automation and cost optimisation. Higher profits ultimately require higher sales, which depend on stronger household incomes and wage growth. At present, we appear to be moving towards a low-growth equilibrium. The government has already introduced income tax rationalisation, GST relief and the RBI has reduced interest rates while injecting substantial liquidity into the system. Yet these measures have not translated into broad-based recovery because household incomes remain weak. Since COVID-19, allocations towards rural programmes such as food subsidies, MNREGA and agriculture have also slowed. Unless wage growth improves, consumption will remain weak, eventually affecting corporate sales and overall economic growth.

There are also concerns about rising income inequality. Has inequality increased despite official claims to the contrary?

Official claims based on the Household Consumption Expenditure Survey suggest inequality has declined. However, the revised GDP series has simultaneously reduced estimated household consumption by around Rs 80 lakh crore for FY23-FY26. Since comparable historical data is unavailable, it is difficult to make definitive conclusions. Evidence from other studies paints a different picture. In the formal sector itself, inequality has increased. When wages remain stagnant or decline for a large section of the population, it is difficult to reconcile that with claims of falling inequality. Research by Thomas Piketty and his co-authors suggests that income inequality may now be as high as during the British colonial period. Overall, the broader body of evidence indicates that income disparity has widened.

Artificial intelligence and automation are expected to reshape the labour market further. Could this worsen inequality?

Yes. AI represents another phase of capital deepening. It allows companies to protect and even enhance profitability while reducing dependence on labour. In India, digitisation has already transformed many industries. However, unlike the United States, much of the investment in AI and cloud infrastructure remains concentrated domestically there and is not translating into outsourcing opportunities for Indian IT companies. This has already begun affecting their earnings and revenue growth. As AI adoption accelerates, it is likely to further concentrate wealth and widen income disparities unless accompanied by strong job creation and reskilling initiatives.