Rural wage growth rate lowest in 6 years

October 18, 2013 12:00 am | Updated 05:44 am IST - NEW DELHI:

An unexpected fall in rural wage growth could give the United Progressive Alliance reason to worry that the rural vote, which it was relatively more confident of, may slip away. Essentially, high consumer price inflation for agriculture workers has eroded real wage growth rate to a mere 1.4 per cent.

The average nominal rural wage growth slowed to 14 per cent (year-on-year) in July, the lowest since March 2009, according to an analysis of Labour Bureau data by Neelkanth Mishra and Ravi Shankar, research analysts at Credit Suisse. With rising consumer price inflation for agricultural labourers, this works out to 1.4 per cent growth in real wages, far below the analysts’ expectations of 4-5 per cent, and the lowest seen in six years.

The Congress has been arguing that rural wage increase (caused partly by MGNREGA) has put more money in the hands of rural voters. Consequently, party insiders say they are hoping to counter anti-incumbency in rural areas. But latest wage data may suggest otherwise.

Between 2007-08 and 2011-12, nominal rural wages grew at 15 per cent and real rural wages grew at an average of 6.8 per cent annually, a rate that Ashok Gulati, chairperson of the Committee for Agricultural Costs and Prices who first analysed this trend, says is “unprecedented, at least since the economic reforms began in 1991.” The Congress, which is expected to face a tough fight for urban votes, was counting on increased rural prosperity giving it some electoral security in rural India.

What drove this rise in wages is a matter of some dispute among economists. Mr. Gulati said the rapid increase in real farm wages was primarily driven by ‘pull’ factors of growth of the overall economy, of construction and agriculture in particular. The Mahatma Gandhi National Rural Employee Guarantee Act brought in by the UPA has been credited by economists Erlend Berg of the Oxford University and others for raising rural wages, but Mr. Gulati disagrees.

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