Real wage growth likely to taper to 6.5% in FY26: India Ratings

India Ratings expects wage growth to moderate next year as inflation remains stable and monsoon conditions hold, with a slight slowdown in private consumption growth

Growth in real wages is expected to taper to 6.5 per cent in FY26 from an upwardly revised figure of 7 per cent in FY25, as benign inflation due to the favourable monsoon-led steady agriculture growth is expected to provide support to real wages, credit rating agency India Ratings said on Tuesday.

 

“However, real wage growth could face downward pressures in case there are any adverse weather shock events or disruption in the spatial progression of the monsoon and trade/geo-political issues,” said Paras Jasrai, associate director at India Ratings.

 

Besides, the rating agency also expects the private final consumption expenditure (PFCE) growth to slow down to 6.9 per cent in FY26 from 7.2 per cent in FY25. 

 

“Consumption growth moves in accordance with the trajectory of wage growth. Economic theory posits that individuals base their consumption on their medium/long-term average income rather than current income to smoothen their income consumption mix. Thus, if wage growth is perceived as stable, then it can lead to a more sustained increase in consumption. Conversely, if wage growth is unstable, then the consumption growth may be more muted and volatile,” said India Ratings in a note.

 

Besides, the credit rating agency also analysed the recently released national account data by the statistics ministry. It noted that PFCE growth derailed to 5.6 per cent in FY24 after a good run due to the pent-up demand during FY22-FY23.

 

“A glance at the data suggests real wages growth was one of the major reasons for the decline in PFCE growth,” the note said.

 

It noted that the private sector constituted a 42.8 per cent share in the overall real wages in FY24, highest in the 2011-12 series, while the share of public sector in real wages bill edged down to 32.9 per cent in FY24 (33 per cent in FY23), lowest in the 2011-12 series. Also, the share of households/unorganised sector in real wages fell to a three-year low of 24.3 per cent from 25.1 per cent during the same period. 

FY	Wage growth (%)	PFCE growth (%)
FY 20	4.2	5.2
FY 20	-5.5	-5.3
FY 22	12.6	11.7
FY 23	8.6	7.5
FY 24	5.5	5.6
FY 25	7	7.2
FY 26	6.5	6.9
Source: India Ratings