A report by the domestic rating agency on Monday said the public sector contributed just 20% of national income but accounted for nearly 40% of total wages.

The average share of the public sector in gross value added in the ten years ending FY21 was 19.2%. Still, the share in wages was 39.2%, said an analysis based on Gross Value Added (GVA) data released by India Rating and Research, the National Statistics Office.

The agency said the private sector’s share of GVA and wages was “more balanced,” noting that the private sector accounted for 35.2% of wages, while its contribution to GVA was 36.3% over the same period.

It can be noted that those calling for a smaller role for the state in the economy tend to point to public sector inefficiencies.

The agency reported that nominal wages grew at a compound annual growth rate (CAGR) of 10.4% from FY2012 to FY21, while return on capital (CAGR) grew at a compound annual growth rate (CAGR) of 8.8%.

However, the data at the institutional classification level presents a mixed picture, noting that wages in the private sector have grown the fastest with a CAGR of 13.2%, followed by the public sector at 10% and the household sector with the slowest wage growth, with annual growth. The compound growth rate is 7.2%.

From a return on capital growth perspective, the report said the household sector grew the fastest at 9.1% over the same period, followed by the private sector at 8.9% and the public sector at the lowest at 6.2%.

The report said that if the decade is split in two, the data shows that both wage and return-to-capital growth declined significantly in FY17-FY21 compared to FY12-FY16.

Notably, growth has steadily declined since demonetisation in 2016 until the last quarter of fiscal 2020, when COVID-19 hit everyone and caused it to contract for several quarters.

The report said that nominal wage growth slowed to 6.1% in FY17-FY21 from 11.9% in FY12-FY16, weighing on consumer demand.

Nominal private final consumption expenditure (PFCE) growth was also evident, falling from 13.4% in FY12-FY16 to 7.2% in FY17-FY21.

More importantly, the agency said that nominal wage growth in the household sector, which accounts for 44.5% of GVA, fell from 8.2% in FY12-FY16 to 5.7% in FY17-FY21 while increasing wage growth and PFCE growth in the wake of COVID-19 turned negative in FY21.

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“As much of the growth in consumer demand is driven by wage growth in the household sector, a recovery in their wage growth is critical for a sustainable recovery in consumer demand and overall GDP growth,” said its senior director, Sunil Kumar Sinha, the chief economist, said.