There is now a consensus that the economy has been slowing down and is headed for a hard landing. Many who matter have spoken out and as Yashwant Sinha points out (‘I need to speak up now’, IE, September 27) the rest are afraid to speak out for fear of retribution. But there are some who are still trying to spin half-truths as facts. Surjit Bhalla, who was recently appointed to the Prime Minister’s Economic Advisory Council, seems to have suddenly discovered the data on rural wages and has found that demonetisation has contributed to rising rural wages (‘Data vs gossip: Who should win?’ IE, September 30). He has not only added to the long list of objectives of demonetisation (most of which remained unfulfilled) but has also credited demonetisation for rising wages. The claim is based on his analysis of rural wage data for two categories of workers, ploughmen and carpenters.
Bhalla is right as far as the data he has presented. The trick is not in what he has reported but what he has not. The rural wage data is from the monthly series of wage data from the Labour Bureau as part of the Wage Rates in Rural India (WRRI) series. The new series which starts from November 2013 has wage data pertaining to 12 agricultural occupations and 13 non-agricultural occupations. Among agricultural occupations, the category of general agricultural labourers (GAL) is the representative category of workers, whereas for non-agricultural occupations, the representative workers are the non-agricultural labourers (NAL) based on the employment share among all casual workers. What are the trends as far as wages of rural casual workers are concerned? The charts (How rural occupations have fared) give the real wages of ploughmen, GAL, carpenter and NAL since May 2014 when the Narendra Modi government assumed office. The nominal wages have been deflated by the Consumer Price Index-Rural (CPIR) with the base 2012=100. The clear trend from all the charts is that real wages in July 2017 have declined compared to May 2014 for ploughmen as well as NAL.
The only two categories where real wages have increased are GAL and carpenter, one of the categories picked up by Bhalla. But even for these two, the annual growth rate of wages in the last three years is 1 per cent. The wages of ploughmen and NAL declined by -0.8 per cent and -0.2 per cent per annum respectively. As against these, real wages increased in agricultural and non-agricultural occupations by more than 6 per cent and 7 per cent per annum respectively between 2008 and 2013. Clearly, the trend for real wages has been one of sharp deceleration for agricultural occupations and a sharper decline for non-agricultural occupations since May 2014.
By July 2016, real wages had declined for all occupations except for plantation workers compared to their level in May 2014. However, most wages start rising in July 2016 since it was the first good agricultural year after the back-to-back droughts of 2014 and 2015. The economic recovery in rural areas was also evident from other indicators of rural economy. It certainly preceded demonetisation. The trend of rising wages was largely a reflection of revival of rural demand due to a good monsoon after two years of drought and rural distress which was ignored by the Modi government.
The trend continued even during demonetisation, particularly until January 2017 since the demonetised currency was still valid until December 2016. With demonetisation, most landlords would have preferred to dispose their cash by paying wages at higher rates than depositing the money in banks. The second factor that could have pushed up wages was the increased spending by the government in rural areas after demonetisation once it was clear that demonetisation has disrupted the rural economy. It was clearly evident in the large increase in spending on the Mahatma Gandhi Rural Employment Guarantee Act (MGNREGA) which continued until March 2017. While MGNREGA work is a small component of the rural labour market, there is now enough evidence to suggest that it does create upward pressure on wages by acting as a floor but also by providing additional work. Precisely because of this wages start declining as soon as the stimulus is withdrawn. Compared to January 2017, real wages for all occupation groups, except harvesting, have declined by July 2017, re-confirming the slowdown of the economy post demonetisation.
Most critics of demonetisation have argued that it caused a decline in rural demand and contributed to a fall in agricultural prices following the good harvest in 2016. A sharp drop in inflation did occur and this is what contributed to whatever real wage growth took place, which Bhalla highlights. In fact, nominal wage rate growth had fallen sharply after 2014 to 5 per cent per annum from a high of more than 15 per cent during 2008-2013. The trend since July 2016 in nominal wages remains the same but appears higher in real terms because inflation fell sharply from a level of 5 per cent until October 2016 to less than 2 per cent by June 2017. However, if rural demand did fall, then the matter is not just of real wages but also what happened to employment, an issue Bhalla chooses to ignore.
The story of rural wages is clearly one of declining non-agricultural wages and a marginal recovery in agricultural wages after 2016. But even with this, the wage rate growth is the lowest in the last decade and a half. It not only confirms the story of rural demand collapse since 2014 which was ignored by the government but also confirms that demonetisation only acted as a disruptor for the revival in rural demand which had begun in 2016.
All the data presented here is available in public domain and was also available to Bhalla. But he not only chose to ignore the larger trend of decline in real wages since the Modi government took over but has also indulged in cherry picking by taking carpenter wages as representative of non-agricultural wages as against the non-agricultural labour which is the representative category. Similarly, taking a seasonal employment such as ploughing as representative of agricultural labour defies logic. Both these are skilled work with higher wages than the general workers. He has also presented only half of the wage story, the one that suits the ruling government.