The Great Divide: Why India's Wage Growth Lags Profit Boom, And AI Looms Large

India's Chief Economic Advisor (CEA) V Anantha Nageswaran has delivered a stark message that resonates deeply with the evolving economic landscape: despite a robust surge in corporate profitability, the growth in employee salaries has noticeably lagged behind. This growing disparity, he warns, is a critical issue that threatens the very fabric of income distribution and could intensify with the relentless march of Artificial Intelligence.

Nageswaran's observations highlight a concerning trend: the 'labour share of income' is steadily declining, not just in India but across much of the globe.

This means that a disproportionately larger slice of the economic pie is now flowing to capital owners and shareholders, rather than to the hands of the workers who contribute to that productivity. Historically, the gains from economic growth were more evenly distributed, but recent decades have seen a significant shift towards capital.

The CEA attributes this widening gap to several factors, with automation being a key culprit.

While automation enhances efficiency and boosts company profits, it often reduces the demand for certain types of manual or repetitive labor. The advent of AI, however, is projected to accelerate this trend dramatically, impacting a much broader spectrum of jobs, including those requiring cognitive skills that were once considered safe.

This isn't merely an abstract economic theory; it has tangible implications for the everyday lives of millions.

As salaries fail to keep pace with the rising cost of living or the growth in wealth for business owners, income inequality is exacerbated. Such an imbalance, Nageswaran cautions, could lead to significant social and political challenges, fostering discontent and instability if not proactively addressed.

The solution, while complex, primarily lies in a concerted effort towards skill upgradation and reskilling.

As AI and advanced technologies redefine job roles, the workforce must adapt. Continuous learning and the acquisition of new, high-demand skills are paramount to ensuring that individuals remain relevant and capable of commanding higher wages in the future economy. Governments, educational institutions, and corporations all have a vital role to play in facilitating this transition.

Furthermore, Nageswaran's insights underscore the urgent need for robust social safety nets and innovative policy frameworks that can mitigate the adverse effects of technological displacement.

As traditional employment models evolve, there is a growing imperative to explore new approaches to social welfare and income support that can cushion the impact on those whose livelihoods are most affected by automation and AI. This global phenomenon demands global, yet locally tailored, solutions to ensure inclusive growth.