Share of wages in industry GVA is highest since 1992-93, shows data

Imputed cost of finance to industry rose, share of profits in GVA fell in 2018-19

The share of emoluments to workers, supervisors, and managers in gross value added (GVA) in factories has risen to its highest since 1992-93, an analysis of the recently released official industry data by Business Standard has found. 

Salaries and wages accounted for over 30 per cent of factory GVA in 2018-19, according to the Annual Survey of Industries (ASI) released by the National Statistical Office. 

At the same time, the share of profits in GVA declined over the last decade or so, while the share of interest paid dipped only marginally in 2018-19. 

Economists said that there could be several reasons and that it is difficult to find out how much something would have contributed to this.

“Rising formalisation, at a time when labour participation was declining, may have had an impact. Then, this was a year when the 7th Pay Commission was implemented in state-owned companies, who are very well a part of ASI,” said NR Bhanumurty, vice chancellor at the Bengaluru Dr B.R. Ambedkar School of Economics (BASE) University. 

 

ASI is a nationwide survey of factories employing 10 or more workers using power, and includes those that do not use power but employ 20 or more workers. Its sample size is about 78,000 factories.

Apart from listed companies, it covers the very important private corporate sector, or private firms that aren’t listed, which employ twice as many workers as listed ones, according to ASI data. 

These observations are primary summary inferences from the available data. It must, however, be noted that NSO has made changes to definitions of some parameters used to calculate input costs in 2018-19, and that may have implications on the comparability of data across time.  While the Industrial Statistics division of the NSO was approached for a comment on the changes, Business Standard did not receive a response at the time of writing.
 

Factory growth muted

The national income accounts show that GVA in the economy as a whole grew by 10.5 per cent in nominal terms in 2018-19. ASI data, meanwhile, shows that factory GVA growth was muted at 4.7 per cent in nominal terms that year. There has been a gradual decline in nominal GVA growth from 11.3 per cent in 2012-13. 

The gravity of the economic slowdown became clear in FY20, when nominal GVA growth collapsed to 7.6 per cent (real GVA growth was 4.1 per cent). Manufacturing GVA was stagnant and contracted in real terms that year. 

ASI data for FY19, thus, becomes a precursor to the poor industry growth seen in FY20. 
 

Rise in cost of finance 

Cost of finance continued to rise for factories in FY19, the analysis shows. On average, a manufacturing company paid 14.8 per cent interest on outstanding loans in FY19, up from 14 per cent in the preceding three years.

This is an imputed interest rate, calculated as a ratio of interest paid to outstanding loans. Its level is usually much higher than the market rate because of the short-term nature of small companies’ borrowings. The prevalence of informal borrowing could also be a reason. 

However, outstanding loans declined in FY18 and FY19, suggesting a low preference for fresh credit, which is in line with high frequency data maintained by the Reserve Bank of India. One possible reason for slowing credit and rising cost of borrowing could be the back-to-back policy shocks of demonetisation and the implementation of the goods and services tax, said experts. 

The financial year 2018-19 also saw high inflation, rising bond yields, and rising lending rates in the banking sector as well.