The Indian economic recovery seems led by profits, not wages
Live MintThe first estimates of economic growth in the September quarter indicate that India’s ongoing recovery has been better than expected. J.P. Morgan chief India economist Sajjid Chinoy has pointed out that one of the many ways to calculate the GDP of a country is by adding incomes—the operating profits of companies, wages of households, and the net indirect taxes collected by the government. Higher wages will not improve aggregate outcomes in an economy with low unemployment as well as minimal excess capacity. A recovery led by profits will not lead to higher investment demand as long as there is significant excess capacity in many parts of the Indian economy. Bhaduri and Marglin had pointed out the complex role of wages in a modern economy: “Higher wages mean higher costs on manufacturing, but by providing more purchasing power to the workers they also stimulate demand.
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