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Expressing some concerns, credit rating agency, India Ratings and Research (Ind-Ra) in its latest report has said that the continued muted hikes in employee cost by large corporates despite strong profitability may impact consumption demand, if inflationary pressures remain elevated.

According to the report, a sustained weak demand would limit the ability of corporates to pass on price increases to end-consumers, affecting their top line and hence EBITDA generation. Resultantly, the muted real wage growth since FY20 is expected to remain low in the next 12 to 18 months and turn negative in the medium term, driven by elevated inflationary pressures and constrained ability of most businesses to provide a material wage hike.

Therefore, the agency said that broad-based consumption demand is likely to remain sluggish, although the higher end of consumption demand will remain healthy. As per the rating agency, any increase in employee cost is a function of an improvement in the payment to employees.