Heed India’s CEA Nageswaran: Well-paying companies would be doing themselves a favour

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Subscribe to enjoy similar stories. In 1914, Henry Ford startled his industrialist peers in the US. He raised the wages that Ford Motor Company paid its workers to $5-a-day, twice the market rate, on the rationale (or at least rhetoric) that they too should be able to afford the $440 Model-T cars they rolled off its assembly lines—a factory innovation that crushed unit production cost, cracked open a mass market and whose later adoption for military hardware gave the US an edge in warfare that made it the world’s top power.

While Ford’s revolution was specific to its moment in history, paying people more as an act of enlightened self-interest still has advocates. Last week, India’s chief economic advisor (CEA) V. Anantha Nageswaran had this message for India Inc: “The staff cost of private listed companies has been coming down.

Corporates have used their profits to deleverage. Now it is time to engage in a good combination of capital formation and employment growth…. Without that, there will not be adequate demand in the economy for corporates’ own products to be purchased.

In other words, not paying workers enough will end up being self-destructive or harmful for the corporate sector itself." He added that the Centre was doing its best to incentivize job creation, but made it clear that there was only so much public outlays could do. The CEA’s remarks can be placed in the economic context of weak private investment and consumption, trends that have persisted in spite of state efforts to ‘crowd in’ one to lift the other. Last quarter’s slump in output growth shone a spotlight on how heavily our economy’s expansion still depends on the state as its big spender.