Rural wage growth stagnates as inflation rises

Rural wage growth, which surged in the early months after the pandemic, has since leveled off, unable to keep pace with rising rural inflation.

Rural wages in nominal terms rose 5.2% in January from more than a year ago for agricultural workers. For non-farm workers, wages rose 4.2% from a year ago, according to data compiled by BloombergQuint. Data beyond January are not available.

Data reflect the rural wage rate for men. Growth in rural wages of inshore fishers was excluded due to non-availability.

For agricultural workers, wage growth is the weakest since August 2021. For non-agricultural workers, wage growth has remained constant.

Adjusted for rural retail inflation, real wage growth has moved into negative territory for agricultural workers. For non-agricultural workers, real wage growth, which was already negative, declined further.

Inflation rose further to 6.38% in February, with rural inflation reaching 6.38%. It is estimated to increase further in March and remain at high levels in April.

So far, nominal rural wage growth has been subdued in FY22 and real wage growth has tracked inflation, driving down real wages, according to a Kotak Institutional Equities research note dated dated March 28, 2022. Given that “it is difficult to expect a strong recovery in non-farm demand,” the note adds.

Agricultural GDP growth has been sluggish and the terms of trade in the agricultural economy have been unfavorable in recent quarters, according to the Kotak note. Food inflation remained stable. This is impacting farm household incomes, while high rural retail inflation is reducing their purchasing power, he added.

The Mahatma Gandhi Rural Employment Guarantee Scheme, a fallback option for workers in rural areas, already offers below-market wage rates. While the rates are revised based on the CPI-Agricultural Workers, the increase is not enough, said Rajendran Narayanan, a professor at the School of Arts and Sciences at Azim Premji University. Narayanan suggested that linking MGNREGA wages to the CPI for rural areas is a better idea as it better reflects consumption patterns and is more up-to-date than the agricultural worker inflation index.

According to the latest salary review notification from MGNREGA, the growth rates in the different states range from 0 to 7%.

Low rural wage growth will incentivize migration to urban cities. Narayanan added that the migration this time may involve younger people since education in rural areas has been severely disrupted.

A silver lining could emerge in the form of disruption to global food supply chains due to the Russian-Ukrainian conflict, according to a research note by Prabhudas Lilladhar, dated April 1, 2022. Rising agricultural commodity prices , opening up export potential, coupled with normal monsoons in India, could uplift rural sentiments, according to the note.

However, export possibilities may be limited.

An increase in exports will not greatly benefit India’s 9.3 crore farming households, according to the Kotak Institutional Equities research note. “National achievements are more important for farm incomes,” he added.

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