Real rural wages growth has fallen to an all-time-low of minus 3.8% in September, further confirming the deep structural slowdown in ‘Bharat’ that is also evidenced in sluggish fast-moving consumer goods (FMCG) and two-wheeler sales.
The daily wage rate in rural India for male workers across 25 occupations (12 agricultural and 13 non-agricultural) averaged Rs 331.29 during September, as per field data compiled by the Labour Bureau. This was 3.42% higher than the corresponding level for the same month of 2018. But in “real” terms, after adjusting for inflation based on the all-India consumer price index (CPI) for rural labourers, the wage increase worked out to minus 3.77% year-on-year.
The accompanying chart maps month-wise annual growth in rural wages since 2017. The divergence between “nominal” and “real” growth can be seen particularly after January 2019. That, in turn, has mainly to do with inflation: Between December 2018 and September 2019, nominal year-on-year growth in rural wages has been more or less flat, registering only a marginal decline from 3.76% to 3.42%. However, CPI inflation for rural labourers during the same period has gone up from 1.66% to 7.20%.
Simply put, whatever little rising wages that rural workers have experienced has, in recent months (from March), been more than eaten away by inflation. And that also explains why sales of two-wheelers — considered a barometer of rural demand — recorded a 16.18% de-growth in April-September 2019 over April-September 2018, according to data from the Society of Indian Automobile Manufacturers. The market research firm Nielsen has estimated rural FMCG consumption in India to have grown by just 5% year-on-year in July-September, the lowest in the last seven years.
There could be two reasons why real rural wage growth has slumped to negative territory during the current fiscal.
The first is structural: Low crop prices, especially in the post-demonetisation period, and the overall slowing down of the economy has reduced demand for labour in farms as well as non-farm avenues such as construction, manufacturing and assorted services.
The second is more immediate. Kharif crop production this time has been affected by a combination of early-season drought from the delayed onset of the monsoon and prolonged unseasonal rains towards the time of harvesting. Together, they have impacted farm labour demand, even amidst further diminishing employment opportunities in the rest of the economy.
What can one expect in the months ahead?
A possible source of optimism is the recovery of sorts taking place in crop prices — not only of onions, but also pulses, milk, soybean and maize. Click here to read. This, alongside the vastly improved soil moisture conditions from the late monsoon rains extending to November, should spur agriculture labour demand in the current rabi season.
It’s interesting to note here that in the months immediately after the Narendra Modi government’s demonetisation announcement in November 2016, rural wage growth actually saw an uptick. Nominal wage growth touched 6.9% in April 2017. The fact that even real wages showed acceleration, despite the scrapping of the old Rs 500 and Rs 1,000 denomination currency notes, was cited by many as proof of demonetisation not adversely hitting rural India.
The real reason for wage acceleration during that period, though, was a good monsoon coming after back-to-back droughts in 2014 and 2015. Farmers, therefore, planted more area both during the kharif (April-October 2016) and rabi (November-April) cropping seasons. The very prospect of harvesting a bumper rabi crop, and keenness to recoup the production losses of the previous two years, was motivation enough for them to plant at any cost. The resultant rise in demand for labour pulled up rural wages.
But subsequent events showed that while farmers did harvest a bumper rabi crop, the gains from it were offset by a crash in prices. That was largely induced by the post-demonetisation liquidity squeeze in produce markets. As crop prices entered a prolonged bear phase after April 2017, nominal rural wage growth slipped to below 5% by October and have continued to fall thereafter.
It remains to be seen whether the recovery in crop prices seemingly underway now is sustainable. If it turns out that way, wages of rural workers should also, hopefully, recover along with farm incomes.