How well has Corporate India done in the last decade? That question throws up some surprising answers. Taking the 1,000 largest companies, whose detailed numbers will be published by Business Standard later this month, their turnover quadrupled to Rs 12,09,000 crore (or Rs 12.1 trillion) in the 10 years to 2004-05 -- which works out to an annual average growth rate of 15 per cent.

Net profits grew marginally faster, at just under 16 per cent annually. In the same period, the Indian economy grew in nominal terms to 3.75 times its 1994-95 size -- at an annual average rate (including inflation) of 14 per cent.

In short, the largest companies in India did only fractionally better than the economy as a whole. What is important to note is that the large companies are in manufacturing and services, whereas GDP includes slow-moving agriculture as well.

Non-agricultural GDP, therefore, seems to have been growing faster than the largest companies -- and this is the real surprise. Additionally, since profitability numbers were by and large the same at the end as at the start (8.9 per cent of turnover, from 8.3 per cent), Corporate India has little to brag about.

How does one explain these trends? Perhaps the churn in the corporate sector that has been induced by the reform process and the birth of more competitive markets, has meant that some giants of yore have slipped in performance -- like Indian Iron, Nocil, FACT, ITI and Escorts, all of which ranked in the first 50 in 1994-95 and figure much lower in the Business Standard Research Bureau's current rankings.

A second explanation could be that small and medium firms have been doing better than the large ones -- but the figures tell us the opposite. For instance, the largest firms have grown much faster (some quintupling in size) than those ranked just above the 1,000 mark.

Indeed, the company ranked 1,000 today is not even twice the size of the one with the same rank a decade ago.

A more plausible explanation could be that industry as a whole has not grown faster than GDP during the past decade, so one should not expect companies to have done much better; but that raises the question about firms in the rapidly growing service sector.

Whatever the complexities in trying to explain the numbers, the truth is that the average Indian corporate giant has been an average performer in the last 10 years. In short, let's cut the hype.

There is a slight improvement in profits, of course -- but at least in the latter half of the period, this has been entirely on account of saving on labour costs. As Business Standard has reported, the share of labour in total cost dropped between 2000-01 and 2004-05 by 1.41 percentage points to 8.13 per cent (calculated for a larger sample of over 3,000 firms).

This would explain the improvement in profitability by 0.6 percentage point. Before trade union hackles rise, that does not necessarily mean labour has been squeezed, all it points to are productivity gains and better use of installed capacity.

But it is interesting to note from the pan-Asian salary surveys of recent years that India leads Asia every year in salary hikes (usually in the 15 per cent range). Indeed, anecdotal evidence suggests that senior managers in most cases have done better than that -- reflecting either scarcity or greater competitive pressures (or a weakness of shareholder control).

As we get into the season for third-quarter company results, it would be useful to bear these trends in mind, because Indian companies are entering a new phase. The tear-away profit growth of the past three years, fuelled by lower interest rates, will come to an end.

The substantial cost increases (salaries, raw materials, energy, debt) that are now in evidence cannot always be passed on. Indeed, since many companies are into the investment phase of the business cycle, there will almost certainly be a squeeze on net profit margins as debt levels climb.

As a leading, non-recognised predictor of the stock market, I would think that share prices don't have much room left to climb.