An equal focus on both rural wages and farm income is vital to relieve rural distress, says India Ratings and Research (Ind-Ra). Rural distress and farm income are so much in the news lately that they are nearly charting out the political discourse of the forthcoming state and 2019 Parliamentary Elections. The government has committed to doubling the farmers’ income by 2022. However, the largest chunk of rural population is made of daily wage earners, not farmers. Moreover, a significant number of marginal and small farmers often work as daily wage earners. Hence, examining rural wages is as vital as observing farm income to understand the current rural distress.

Dismal Growth in Rural Wages: Rural wages have been under pressure lately and have declined substantially since FY15. Despite a decline in rural inflation, real wages were marked by low single digit growth during FY16-FY18. In fact, it was negative in FY16. The average nominal wage growth over FY13-FY15 was 20.94%, but it came down to 5.18% over FY16-FY18. In real terms (adjusting for CPI inflation rural), however, wage growth declined to 0.45% during FY16-FY18 from 11.18% during FY13-FY15.


For a more nuanced understanding, Ind-Ra glanced through the rural wages data at a more disaggregated level and picked up five agricultural and six non-agricultural occupations to see the change in wage growth rates over time. 

Agricultural & Non-Agricultural Wage Growth Below Par:
For major agricultural occupations such as sowing (including planting, transplanting and weeding), the nominal wage growth was as high as 30.74% in FY13, but dropped to an average of 5.74% during FY16-FY18. The nominal wage growth rates for animal husbandry workers were also consistently strong (in the range of 21.48%-34.77%) during FY13-FY15 but dropped to below 7.0% during FY17-FY18. 


Even in real terms, rural wage growth rates declined sharply across all agricultural operations during FY16-FY18 from the rates prevailing during FY13-FY15. The worst hit among the agricultural operations were harvesting/winnowing/threshing where real wages growth turned negative for two consecutive years in FY16 and FY17. 

The fate of non-agricultural wage growth was no different from that of agricultural wage growth. Both in nominal and real terms, the growth rates were significantly lower in FY16-FY18 than in FY13-FY15. For the occupation of sweeper, the real growth stood at 0.67% (average annual over FY16-FY18), while it was 14.81% in the preceding years (average annual over FY13-FY15). In FY17, real growth in sweeper wages even slipped into the negative territory, along with the category of light motor vehicle (LMV) and tractor driver.


Period of Slowdown: A glance at the month-on-month FY16-FY18 data gives a clearer idea of the sluggish nature of rural wage growth. At end-FY18, real wages for three of the five agricultural operations (ploughing/tilling, harvesting/winnowing/threshing and sowing workers) were almost at the same level as they were in April 2015. Real wages for non-agricultural labour were also largely stagnant over this period, though with lesser fluctuations than agricultural wages. This illustrates the dire state of the rural wages which has failed to even keep pace with the inflation. 

In August 2016 the government had raised the minimum wage for non-agricultural labourers by 42%. As a result, when demonetisation hit the cash-based rural economy, it did not have a drastic effect on non-agricultural rural wages. In addition, the highest ever budget allocation for Mahatma Gandhi National Rural Employment Guarantee Scheme was made in the period after demonetisation to shield the rural/informal economy from the after-effects of the regulatory move. While these measures may have helped shield the nominal wages from falling, they did not provide the necessary impetus to strengthen real wage growth and reduce rural distress in a significant way. 

Ind-Ra believes even the hike in minimum support prices to 1.5x of A2+FL costs this kharif season may translate into only notional comfort to rural wages. It requires a far more concerted effort including a strategy to augment rural infrastructure. This will not only increase agricultural productivity but also create more and better employment opportunities in the rural areas.



SOLICITATION DISCLOSURES

Additional information is available at www.indiaratings.co.in. 

Ratings are not a recommendation or suggestion, directly or indirectly, to you or any other person, to buy, sell, make or hold any investment, loan or security or to undertake any investment strategy with respect to any investment, loan or security or any issuer.

DISCLAIMER

ALL CREDIT RATINGS ASSIGNED BY INDIA RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTPS://WWW.INDIARATINGS.CO.IN/RATING-DEFINITIONS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE WWW.INDIARATINGS.CO.IN. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. INDIA RATINGS’ CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE.

Applicable Criteria

  • Rating criteria not avaiable.

Analyst Names

  • Shubha Bharadwaj

    Senior Research Associate

    Dr. Sunil Kumar Sinha

    Principal Economist and Director Public Finance
    +91 11 43567255

    Media Relation

    Namita Sharma

    Manager – Corporate Communication
    +91 22 40356121