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The Indian economic recovery seems led by profits, not wages -Niranjan Rajadhyaksha

-Livemint.com

Such a recovery will be stress-tested in an economy with excess capacity. That is why wages matter

The first estimates of economic growth in the September quarter indicate that India’s ongoing recovery has been better than expected. This is a good time to resurrect a question this column had raised in August: Will the economic recovery be led by profits or wages? The answer matters because it has implications for aggregate demand in the coming quarters.

A good place to begin is the corporate results for the three months ended September. Indian companies reported a decline in sales. However, operating profits growth was in the double digits. Net profits grew even faster. Large firms achieved this by slashing costs.

Listed companies are only a small part of the overall Indian economy, but they have an outsized influence on the initial gross domestic product (GDP) estimates that the government releases. The increase in the operating profits of large companies, despite lower sales, is also a reason why industrial gross value added (GVA) was positive in the second quarter, despite a decline in the index of industrial production (IIP).

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