Indian companies are scaling down their salary outlays which could deflate urban consumption, according to a new report by Nomura.

“When deflated by urban CPI, real salary and wage expenditure growth of listed non-financial corporates – a proxy for real urban wages – has moderated to 0.8 per cent y-o-y in Q2 FY25 (provisional for July-September) from 1.2 per cent in Q1 FY25 and is down from 2.5 per cent in FY24 (year-ended March 2024) and 10.8 per cent in FY23. This likely reflects a mix of weaker nominal salary growth and a leaner workforce,” Nomura said.

Additionally, the post-pandemic surge in pent-up demand has faded, monetary policy is tight and the RBI’s macroprudential crackdown on unsecured, frothy credit is being reflected in the slowdown in personal loans and lending growth by non-banking finance companies, the financial services firm said.

“We believe India’s economy has entered a cyclical growth slowdown. Coincident and leading growth indicators point to a further moderation in GDP growth and the RBI’s forecast of 7.2 per cent for FY25 is overly optimistic, in our view. We see rising downside risks to our own GDP growth projections of 6.7 per cent in FY25 and 6.8 per cent in FY26,” it added.

RBI Bulletin

Last week, the Reserve Bank of India’s Bulletin had said that high-frequency indicators have pointed to a slowdown in the second quarter of 2024-25, with the Indian economy experiencing a temporary dip in momentum.

Also read
THE HINDU

Urban demand appears to moderate but rural demand continues to improve, says Finmin report

According to the State of the Economy article published in the latest Reserve Bank of India Bulletin, this deceleration is partly attributed to idiosyncratic factors, such as unusually heavy rains in August and September. Despite these short-term challenges, India’s overall growth outlook remains strong, driven by robust domestic factors and a promising revival in demand, especially with the upcoming festive season, the bulletin said.