Income inequality in India: Highest in 100 years.
The famous French Economist Thomas Piketty shown in his recent research that Income inequality is at it’s highest in India. The top 1% of total Indian earn 22% of all income. Out of which top 0.01 % earn 4% of all income.
Let us understand this in context of corporate world in India. For an example, let us assume there is large company have 10,000 employees. Say this company pays 1000Cr as salary to it’s employees in total.According to Thomas Piketty the top 0.01% of the employees such MD/CEO/CFO in this company earn 4% of 1000Cr i.e 40Cr. & rest 960 Cr is divided among 9999 employees which average comes around 10 Lacs. Hence the MD earns 40Cr & an average employee earns 10 Lac. The MD earn 400 times than its average employee. (400:1). This is what Thomas Piketty is saying in context of corporate India.
Is this true? As per Bloomberg report, they have selected 20 different companies both from public & private sector which has 1.68 billion people in total. They find out that MD’s of private sector companies such as JSW Steel, Bajaj Auto, Hero motor corp, ITC & ICICI Bank MD’s earn 200-500 times more than their average employees, whereas the companies like TCS & Maruti suzuki MD’s earn only 25 times than their average employees. The MD’s of public sector companies earn just 3 times more than their average employees.
Hence we may think that more the profit of the companies the more salary is paid to their MDs, but that’s not true, companies profits are not directly related to MDs pay. In the example Maruti Suzuki is more profitable than Bajaj Auto & Hero Motor Corp, but Maruti Suzukis MD earns the least among the three.
So if it it’s not the profits then it might be the stock prices of the company? In the example the TCS stock perform well than Infosys in FY 16-17 but the MD of Infosys earn 3 times more than TCS MD.
Hence it is clear the MDs of large private sector companies earn on an average 300 times more than its average employees, regardless of company profits or stock performance.
We should really worried about this issue. This income inequality is raging issue all over the world which leads to various protest in the US as well as in Europe.
In a country like India where there is lack of jobs & fear of loosing jobs among the young Indians, their MD are getting extremely high salaries. This is a major concern for our society.
Don’t be blind folded over the rising income inequality issue in India. The government needs to delicately handle this issue over income inequality.
Data Source: Bloomberg
Disclaimer: The article is for educational purpose & study for this research is done by Bloomberg. The data in this article is taken from Bloomberg,henceforth the data source is mentioned above.