Rural Wage Growth Sustains Its Rebound In Recent Months

After months of slackening, rural wage growth has shown a rebound, accompanied by falling inflation.

Rural wages are trending upward for agricultural and non-agricultural workers. Rural wages rose by over 7% for agricultural workers this year, easing by 6.7% in February. For non-agricultural workers, wages rose by over 5% for five months straight, according to data collated by BQ Prime. Data beyond February is not yet available.

The data reflects the rural wage rate for men. Rural wage growth for coastal fishermen has been excluded on account of non-availability.

Adjusted for rural retail inflation, real wage growth is in positive territory for non-agricultural workers. For agricultural workers, real wage growth is neutral.

Rural inflation further fell to 5.51% in March, with headline inflation falling to 5.66%. It is estimated to fall further in April and trend within the central bank's target range of 4 (+/- 2)% in the current fiscal after exceeding it for most months last fiscal. CPI inflation is projected at 5.2% for 2023–24, as per RBI estimates.

The growth 'baton' is being passed from the formal to the informal sector, stated a research note by Pranjul Bhandari, chief economist at HSBC. Activity is picking up across the rural and urban informal sectors. Rural demand seems to be recovering on the back of rising real wages, she said. A good rabi crop could keep the sector on a recovering path for longer, she added.

In other rural indicators, tractor sales continued to hold up, growing by 13.7% year-on-year in March 2023 compared to 20% in February 2023, according to Teresa Jon, economist at Nirmal Bang Institutional Equities. On a monthly basis, it rose by 32.9%. Two-wheeler sales grew by 9% year-on-year in March 2023, from 8.8% in February. On a monthly basis, sales rose by 14.2%. While sales of passenger vehicles were muted, commercial vehicle growth was strong.

Government spending came under pressure in February, declining by 2.6% year-on-year and by 6.8% on a monthly basis, John said.

Rural demand indicators such as the production of non-durables have risen even as some indicators of urban demand have declined, Bhandari said in an earlier note. Similarly, after the back-to-back shocks of lockdowns and rising global commodity prices, the informal sector has begun to regain its footing. She said there are strong interlinkages and similar consumption patterns between rural and informal sector demand.