Why Gen Z Is Agitated FY13 to FY23 Tax Return Data of Salaried Persons: Inflation-Adjusted Wage Growth in 10 Yrs (a) Below ₹10L: -21% (b) ₹10L to ₹50L: -39% (c) Above ₹50L: -46%; Purchasing power hugely down in 10 yrs; Nominal wage growth is flat. Working Class: The Lost Decade The Income Tax Return Statistics released by the I.T. Department for FY13 and FY23 reveal what is going on with salaried taxpayers in the last 10 years. Writer and journalist Monika Halan @monikahalan has published eye-opening data in her HT column today. Definitions: a. Nominal Wage = Wage Not Adjusted for Inflation b. Real Wage = Inflation-Adjusted Wage (Real Purchasing Power) Annual Inflation Rate from FY13 to FY23 (Ministry Data) is as follows: Using CPI (MOSPI, Base 2024=100): Consumer Price Index (CPI) was 55.6 in March 2013 and 93.3 in March 2023. This means cumulative inflation of 68% over the decade (Inflation: 5.3% per year average). FY13 to FY23 Income Below ₹10 Lakh PA Nominal Wage Growth: +2.8%/yr Inflation-adj Growth: -2.4%/yr Real Change in 10 yrs: -21.5% Income ₹10 Lakh to ₹50 Lakh PA Nominal Wage Growth: +0.3%/yr Inflation-adj Growth: -4.8%/yr Real Change in 10 yrs: -38.7% Income Above ₹50 Lakh P.A. Nominal Wage Growth: -1.1%/yr Inflation-adj Growth: -6.0%/yr Real Change in 10 yrs: -46.4% It Means: On average, if your annual salary was ₹1 cr in FY13, your nominal (on paper) salary in FY23 is ₹89L, and your real salary (adjusted for inflation @ 5.3% per year) is ₹53.6L. For a salary earner on average: High Income: Purchasing Power is down 47% Middle Income: Purchasing Power is down 39% Low Income: Purchasing Power is down 21% The low-income group (below ₹10 lakh p.a.) is the least hit in terms of wage stagnation and wage de-growth. GDP Growth vs. Wage Growth Question: From FY13 to FY23, how the annual nominal GDP growth is around 11%, while annual nominal wage growth is only 2.8% for lower income, 0.3% (flat) for middle income, and -1% (negative) for higher income salaried individuals? Answer: a. Demographic Dividend: India adds roughly 1 crore young individuals to the working-age population every year. As these new workers join the formal economy, they add to the nation’s productivity (GDP), receive salaries, and become taxpayers. b. Nearly all of the GDP growth (related to salaried employees) comes from more taxpayers entering the system rather than existing taxpayers earning substantially more within their income band. c. Since labour supply is more than demand, the bargaining power of employers increases. As a result, the salaries of existing workers remain flat or negative. d. So, India’s GDP growth story is a labour supply-driven growth story, and not a labour demand-driven (wage-growth driven) story. e. Upward Mobility: Some smart or lucky individuals manage to move up the income bands through skill upgrades, job switching, etc. But the vast majority remain stuck within their band, and keep losing the inflation battle. Gen Z’s Uncertain Future a. India is not an export-led or manufacturing-led economy. India’s growth story is a domestic consumption growth story. But the massive “demographic dividend” which India enjoyed for so long is now ending. Nothing lasts forever. b. India urgently needs to move from a labour-supply driven economy to real wage-growth driven economy. Otherwise, once the demographic tailwind ends in a few years, there will be no wage tailwind to replace it. c. Economists like Dr. Arvind Subramanian @arvindsubraman and Dr. Raghuram Rajan have long said that consumption in India is broken. Now we know that’s because wage growth is broken. ENDQUOTE “Poverty is the parent of revolution.” – Aristotle, Politics: Book II (4th Century BC) @arabicatrader