Not so 'acche din' for rural wages

Rural India is not having 'acche din' as a softening trend in the growth of wages has set in.

Labour Bureau and RBI data show that rural wages for men have seen an average annual growth of a mere 2.9 per cent in November 2014 (compared to 43.9 per cent growth in November 2013), in contrast to the double-digit growth that was witnessed till June last year.

Two factors seem responsible for the trend: moderate increase in support prices of crops and a drop in employment guarantee expenditure.

An analysis of the ploughing/tilling wage rates in agriculture, which employs a significant chunk of rural labour, shows that worst affected are states like Maharashtra, Kerala, Andhra Pradesh and Odisha where the daily wage rate for men either declined or remained flat in November. However, an increase was seen in states like Gujarat, Bihar, Uttar Pradesh, West Bengal and Haryana.

According to the mid-year economic review by the Finance Ministry released last December, the growth rate in rural wages that averaged 18 per cent for the previous five years has sharply decelerated into the single digit territory.

"This reflects strong disinflationary pressures in agriculture and signals a slack in the labour market," it said.

The expenditure on National Rural Employment Guarantee schemes has seen decline of 3 per cent and 36 per cent, respectively, in the last two years.

This appears to be the prominent reason.

Another important reason is the moderation of rate increase in the minimum support price of agriculture crops by the government in the current financial year.

Data shows that against an average growth of 12 per cent in support prices of wheat and paddy from 2007 to 2013, the growth this year is only 3.8 per cent.

The central government has also directed states not to grant bonuses on procurement of wheat and paddy as it distorts market prices and adds to inflation.

So, what is the fallout? As of now, this trend will sustain since farm incomes will not rise as sharply as they have been doing. Rural wage growth could continue to decelerate and would moderate inflationary pressures.

Impact of a slow wage rate growth in rural India will be felt among a large segment of industries such as FMCG, telecom, two wheelers, consumer durables, steel, cement, etc.

Many of these industries had identified rural India as the future growth driver since urban consumption is getting saturated and inflation has impacted the capacity to spend.