A farmer sits on a cart during a cattle fair at the Agricultural Produce Market Committee (APMC) wholesale market in Dhule district, Maharashtra, India, on Tuesday, Oct. 10, 2017. (Photographer: Dhiraj Singh/Bloomberg)

The Rural Conundrum: Wage Growth Decelerates While Inflation Picks Up

Wage growth for rural workers slowed in January extending a period of modest increase in incomes in the hinterlands, shows data released by the government’s Labour Bureau recently.

According to the data compiled by BloombergQuint, average wages for men across agricultural and non-agricultural segments in rural India rose by 3.4 percent in January 2018, lower than the 6 percent growth seen in January 2017. The wage growth seen in January 2018 was the lowest in three years. Average wages for women in rural areas increased by 4.9 percent in January 2018, marginally higher than the 4.7 percent wage growth in January 2017.

The data was first reported by Mint newspaper on Monday.

Wage growth declined across both agricultural and non-agricultural occupations. For men employed in agricultural activities, wages rose by 3.4 percent. Across non-agricultural activities wage growth stood at 3.6 percent.

Evidence of weak growth in rural wages comes at a time when inflation is on the rise. Consumer price inflation rose 4.58 percent in April 2018, with rural inflation outpacing urban inflation. Inflation in rural areas rose 4.7 percent compared to 4.4 percent in urban areas, showed data released by the government earlier this month.

Slow growth in rural wages alongside high inflation will mean that real incomes in rural areas will be flat or close to negative. Nominal wage growth, when adjusted for inflation, gives us the real growth in wages.

Average growth in real wages has been moderating since April 2014, showed an RBI study on rural wage dynamics released in April 2018. One of the findings of the study was that while there is “statistically significant positive relationship” between prices and wages in rural areas in the long term, the adjustment can happen with a lag due to stickyness of nominal wages.

Should the correlations highlighted by the RBI paper play out in the current scenario, real rural wages may remain weak in the face of rising inflation and modest nominal growth in wages.

Could this mean more stress in the agrarian economy?

Shubhada Rao, chief economist at Yes Bank notes that there are mitigating factors to help alleviate the stress.

The coming months will see the implementation of the intended revised MSP (minimum support price) formula that has been designed to alleviate the stress of farmers and reduce their burden. Furthermore, with rainfall predicted to be normal this year, with respect to timing and distribution, farmers can expect higher realized income through better agricultural output.
Shubhada Rao, Chief Economist, Yes Bank