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Key Points

A recent ICICI Bank Global Markets report highlights a significant slowdown in wage growth, dropping from 15% to 7.5% in financial year 2025. The economic challenges are particularly evident in urban markets, with reduced discretionary spending across sectors like FMCG and automotive. To combat this trend, the government has proposed tax cuts and monetary policy adjustments to stimulate economic recovery. Despite these challenges, India's economic growth remained robust at 6.5% in the past financial year, showing resilience amidst global economic uncertainties.

Key Points: ICICI Report Reveals Wage Slowdown Challenging Indian Economy Growth

  • Wage growth halved to 7.5% in FY25
  • Urban consumption severely impacted by economic challenges
  • IT sector hiring contracts significantly
  • Government announces Rs 1 trillion tax relief
2 min read

Lower wage growth impacting consumption; tax cuts and rate cuts tools to spur growth: Report

ICICI Bank analysis shows wage growth halving, consumption weakening, with tax and rate cuts proposed to stimulate economic momentum

"We believe further monetary support is required to spur consumption when inflation is easing - ICICI Bank Global Markets Report"

New Delhi, June 5

Weakening wage and job growth cycle is impacting consumption sentiment, and tax cuts and rate cuts will help accelerate momentum, according to a report by ICICI Bank Global Markets.

The report highlights that wage growth for listed Indian companies nearly halved in the financial year (FY) 2025, slowing to 7.5 per cent from an average of 15 per cent year-on-year (YoY) between FY22 and FY24, impacting consumption.

The deceleration in wage growth can be attributed to the tepid demand and global economic uncertainty.

The report adds that the slowdown, coupled with high inflation and elevated interest rates, has eroded consumers' discretionary income, particularly in urban areas. Spending across sectors has dampened.

"Lower interest rates should lead to further recovery in consumption as repo-linked loans get repriced lower and reduce the interest outgo for consumers," according to ICICI Bank Global Markets report.

"We believe further monetary support is required to spur consumption when inflation is easing," it said.

Backing its assertion, the report added that Fast-Moving Consumer Goods (FMCG) sales in urban centres are trailing rural markets. In contrast, passenger vehicle sales growth has sharply decelerated to 4.5 per cent in FY25 from 8.8 per cent the previous year.

On the job growth front, the report added that once a strong hiring engine, the IT sector continues to grapple with demand challenges from tech disruptions, monetary tightening, and trade volatility. Net hiring peaked at 293,000 in FY22 and saw a net contraction of 70,000 by FY24.

The Indian economy grew by 6.5 per cent in real terms in the recently concluded financial year 2024-25, according to the Ministry of Statistics and Programme Implementation's official data.

While the economic growth was 7.4 per cent in the January-March quarter (Q4) of FY25. This was a sharp rise from the 6.2 per cent recorded in the previous quarter.

Given the underlying weakness in urban demand, the government announced an income tax relief of Rs 1 trillion in the Union Budget 2025-26.

The other factors favouring a consumption recovery are lower food inflation as well as the recent uptick seen in GST collections. In the last two months we have seen a visible acceleration in GST collections, with gross GST revenues increasing by 16.4 per cent YoY in May and 12.6 per cent YoY in April, respectively.

- ANI

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Reader Comments

R
Rajesh K.
This report confirms what middle-class families are feeling daily. My salary hike was just 6% this year while grocery bills have shot up 20%! Government must focus on controlling inflation first before talking about consumption growth. Tax cuts are welcome but won't help if prices keep rising. 😓
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Priya M.
Interesting to see rural markets outperforming urban in FMCG! Shows our villages are becoming stronger economically. But the IT sector job losses are worrying - my cousin in Bangalore was laid off last month. Hope the government's focus on manufacturing can create new employment opportunities.
A
Arjun S.
RBI should definitely cut interest rates now. My home loan EMI is eating up 40% of my salary! With lower rates, people like me will have more money to spend which will boost the economy. It's simple maths - when common man has more disposable income, markets will automatically grow.
S
Sunita R.
While tax cuts sound good, I'm skeptical about how much will actually reach middle-class pockets. Instead of big corporate tax breaks, government should increase standard deduction limits for salaried employees. We bear the highest tax burden while getting least benefits!
V
Vikram J.
The 7.5% wage growth figure seems inflated for most industries. In my company (automobile sector), average hikes were barely 5% this year. Management blamed 'global uncertainty' but gave themselves fat bonuses! Corporate greed is as much to blame as economic factors.
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Neha P.
Positive signs in GST collections show business activity is picking up. Maybe we're being too pessimistic? India's growth at 6.5% is still better than most countries. We need patience - economic cycles have ups and downs. Focus should be on skill development to prepare for next growth phase.

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