Dip in rural wage growth rate may dent UPA vote

October 18, 2013 12:00 am | Updated 05:51 am IST - NEW DELHI:

High consumer price inflation for agriculture workers has eroded it to mere 1.4 per cent

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. “MGNREGA employment overall at all India level is less than 5 per cent of the rural employment. So it cannot move the wage rates of remaining 95 per cent of work force,” he says.

The Credit Suisse analysts believe that it is too early to assume that wage growth will keep falling for two reasons. The first is that non-farm rural wage growth has continued to grow apace. “That is not to say these wages can hold up even if overall agricultural wages were to fall significantly for several months, but they are clearly not leading the decline,” Mr. Mishra and Mr. Shankar say. The second is that nearly a third of the fall in wage growth was from cane-crushing, most pronounced in Uttar Pradesh, and as a result of a general slowdown in the sugar industry.

“The nominal farm wages are still growing at 15 to 20 per cent in most States. But it cannot go on ad-infinitum…very soon a time will come when overall growth rate will start decelerating…[B]ut so far no major signs have appeared,” Mr. Gulati said.

Agricultural wages now range by activity from Rs. 120 a day for herdsmen to Rs. 218 for ploughing for men, according to the Labour Bureau data. They range by State from Rs. 147 a day for ploughing for men in Madhya Pradesh and Rs. 162 in Gujarat at the lowest end to Rs. 341 a day in Tamil Nadu and Rs. 588 in Kerala at the upper end.

The Congress was counting on increased rural prosperity for its rural vote

It is too early to assume that wage growth will keep falling: Credit Suisse analysts

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