According to a report released by India Ratings and Research, the public sector makes up only 20% of the national income, but pays out close to 40% of all wages.
In an analysis based on gross value added (GVA) statistics given by the National Statistical Office, it was found that while the public sector’s average proportion of gross value addition for the ten years ending in FY21 was 19.2%, the percentage of wages was 39.2%.
The agency said that the private sector contributes 35.2% of wages while making up 36.3% of GVA for the same time period, indicating that the private sector’s participation in GVA and salaries is “more evenly balanced.”
According to the agency’s research, between FY12 and FY21, nominal wages increased at a CAGR of 10.4%, while return on capital increased at a CAGR of 8.8%. According to the data, if the ten years were divided into two, growth in wages and return on capital declined in FY17-FY21 compared to FY12-FY16.
The share of the private sector in GVA and wages is “more evenly balanced”, the agency said, pointing out that it accounts for 35.2 per cent of the wages while its contribution to GVA is 36.3 per cent for the same period.
It can be noted that those pressing for a lesser role of the state in the economy, often point out to the lack of efficiency in the public sector. The agency’s report said nominal wages grew at a compounded annual growth rate (CAGR) of 10.4 per cent, while return on capital grew at a CAGR of 8.8 per cent during FY12-FY21.
However, the data at the institutional classification level, presents a somewhat mixed picture, it said, pointing that wages grew fastest at a CAGR of 13.2 per cent in the private sector, followed by the public sector at 10 per cent and the household sector recorded the slowest wage growth at a CAGR of 7.2 per cent.
The report said the nominal wage growth slowed down to 6.1 per cent during FY17-FY21 from 11.9 per cent during FY12-FY16, impacting consumption demand. The same is clearly visible in the nominal private final consumption expenditure (PFCE) growth which declined to 7.2 per cent during FY17-FY21 from 13.4 per cent during FY12-FY16.
