The trends in wage growth are against the rosy picture of a recovering and buoyant economy

With the general elections only months away, the time has come to evaluate the performance of the incumbent National Democratic Alliance (NDA) government led by Prime Minister Narendra Modi.

Among the various parameters on which the performance of the government will be evaluated, the worsening economic situation in rural areas is certainly the most important.

As this government came on the promise of “Sabka saath, sabka vikas”, the performance of the economy will not only be evaluated on the broad aggregate metrics of growth rates but also on whether growth has contributed to improving the lives and livelihoods of the poorest sections of society.

There is no dispute that agricultural and non-agricultural manual casual labourers in rural India are among the poorest occupational group. They are not insignificant, with casual workers accounting for almost one-third of all workers.

The data on wages/incomes of manual casual workers clearly suggests that not only have they seen a secular deceleration in growth rates of wages since this government took over, but also that there does not appear to be any sign of these improving, despite the signs of recovery suggested by the aggregate gross domestic product (GDP) numbers. Unlike other data sources on employment and GDP, the data on wages from the Labour Bureau based on the Wage Rates In Rural India series remains credible and provides information on trend in wage rates in rural India. While the series provides wage data for various occupations, it is safe to assume that general agriculture labour and general non-agricultural labour occupational groups are representative of the two categories of casual workers.

The most recent data in this series is available for October 2018. Since May 2014, when this government took over, real wages of agricultural labourers have grown at the rate of 0.77% per annum until October 2018, whereas it has grown only at 0.02% per annum for non-agricultural labourers. For construction workers, who form among the largest group of workers outside agriculture, real wages during the same period has declined by 0.24% per annum. For all agricultural occupations together, the growth rate of real wages during this period is 0.55% per annum. Since November 2016, real wages of casual workers are almost stagnant with almost no growth. It is important to note that the current spell of stagnation in real wages is the longest and the worst in the past three decades. Clearly, the crisis in the countryside is not just for the farmers who cultivate but also for wage workers who depend on availability of jobs in agriculture and outside agriculture.

Why does rural India continue to witness stagnant and declining real wages? Primarily because the agrarian economy, which drives the rural economy, has been under severe stress. Declining crop prices continue to remain a worry for agricultural income, with wholesale and retail prices for most crops showing a declining trend in the past five months. Even non-food crops have gone through a price collapse. Clearly, the government’s effort of raising prices through minimum support prices has not been effective.

However, it is also because the non-agricultural sector of the rural economy is doing worse than the agricultural economy. While it is only partly a reflection of the agrarian distress spilling over to the non-agricultural sector, a large part of it is also because of the after-effects of demonetization and goods and services tax, which continue to affect the rural non-farm economy. It is also a reflection of slow manufacturing and construction growth in rural areas, both of which contributed largely to the growth rate of real wages and employment creation during the United Progressive Alliance government.

The trends in wage growth are clearly contrary to the rosy picture of a recovering and buoyant economy projected by the government and suggests a far more serious crisis in rural areas than reflected by the agrarian crisis. How does one reconcile these two trends? While it is possible that wages continue to decline as overall growth rates continue to rise, it does imply that the growth rate is not inclusive and has bypassed the poorest sections. It certainly points towards a trend of increasing impoverishment and rising inequality, both of which are not good for the economy. However, it is also a strong indicator that the underlying factors, which caused demand deflation in rural areas leading to rural distress, continue to remain strong and relevant. There is no evidence to suggest a recovery in the fortune of rural dwellers after November 2016. In fact, it has only worsened.

Clearly, there is very little to suggest that either the growth has benefited the rural economy or that recent growth has reduced the extent of rural distress. This is not just a statistical issue, but is at the core of the promises made by this government to bring in improvements in the lives and livelihoods of the poorest. This will also be the issue in the upcoming political battle. Unlike the farmers who have managed to get their demands heard with parties competing for loan waivers, the poorest have only the ballot to express their anger.