Rural Wage Growth Flatlines While Inflation Rises
Rural wage growth, which saw a spurt in the early months after the pandemic, has since flattened, unable to keep pace with the rise in rural inflation.
Rural wages in nominal terms rose 5.2% in January over a year ago for agricultural workers. For non-agricultural workers, wages rose 4.2% over last year, data collated by BloombergQuint shows. Data beyond January is not available.
The data reflects the rural wage rate for men. Rural wage growth for coastal fisherman has been excluded on account of non-availability.
For agricultural workers, wage growth is the lowest since August 2021. For non-agricultural workers, wage growth has remained constant.
Adjusted for rural retail inflation, the real wage growth has slipped into negative territory for agricultural workers. For non-agricultural workers, real wage growth, which was already negative, has fallen further.
Inflation further rose to 6.38% in February, with rural inflation rising to 6.38%. It is estimated to rise further in March and remain at elevated levels in April.
Nominal rural wage growth has been muted in FY22 so far and real wage growth has trailed inflation leading to a decline in real wages, said a research note by Kotak Institutional Equities dated March 28, 2022. Given that, "it is difficult to expect a sharp recovery in non-agricultural demand," the note added.
Agriculture GDP growth has been tepid and terms-of-trade in the agricultural economy have been unfavorable in the past several quarters, the Kotak note said. Food inflation has been stable. This impacts the income side of agricultural households, while high rural retail inflation dents their spending power, it added.
The Mahatma Gandhi Rural Employment Guarantee Scheme, a fall back option for workers in rural areas, already offers lower wage rates than market rates. While rates are revised basis the CPI-Agricultural Workers, the increase is not enough, said Rajendran Narayanan, professor at the School of Arts and Sciences at the Azim Premji University. Narayanan suggested that linking MGNREGA wages to the CPI for rural areas is a better idea since it mirrors consumption patterns better and is more updated than the inflation index agricultural labourers.
As per the latest notification for revision of MGNREGA wages, growth rates across different states range from 0-7%.
Depressed rural wage growth will prompt migration to urban cities. Narayanan added that migration this time may comprise of younger people since education in rural areas has been severely disrupted.
A silver lining may emerge in the form of disruption of global food supply chains due to the Russia-Ukraine conflict, said a research note by Prabhudas Lilladhar, dated April 1, 2022. Higher agricultural commodity prices, opening up the potential for exports, coupled with normal monsoons in India, could lift rural sentiments, the note said.
The export opportunity, however, may be limited.
An increase in exports will not greatly benefit India's 9.3 crore agricultural households, said the research note by Kotak Institutional Equities. "Domestic realisations are more material for farm income," it added.
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