Back to the farm

Clearly,then,along with having to adjust to costly capital due to higher than average global interest rates,the industrial sector has begun to lose out on the advantage of easier labour supply. Wages for agricultural workers were pathetically low at the beginning of the decade. That needed to be corrected,but since the rise in productivity in the farms has not been commensurate,the rise in wages is more of a transfer from the state to rural India. At the same time,RBI analysis of factor productivity in the manufacturing sector,which accounts for most of the industrial workers,shows wages and rise in productivity have been largely in sync. Even providing for caveats for instance,that the data sets released by the government are averages across states and bury inter-state variation the conclusion holds. Also,since agricultural work is by nature more uniform than industrial work,the difference in wages for farm workers against low-skilled workers in the industrial sector is even lower,strengthening the case against migration.

These are systemic aberrations. Low transfer of workers to the industrial sector will push the economy towards a low growth path. The Planning Commission has already pointed out that a 5 per cent rate of growth of the economy for the next few years looks like a distinct possibility. The constriction in the labour market will only add to that concern. Todays dismal data on the index of industrial production is a reminder that the economy needs a solution for unfreezing labour from the farms,if manufacturing has to climb up from its current 15 per cent share in the GDP.

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