Data on rural wages in different states and occupations released by the Reserve Bank of India (RBI) last week throws interesting light on India’s rural economy. When read together with data on consumption released by the National Sample Survey Office (NSSO) early last month, they confirm many of the trends that have been written about in past years.
Two trends are quite visible from the RBI figures. First, growth in nominal rural wages outpaces nominal gross domestic product (GDP) growth in agriculture and services. From mid-2008 at least, there has been a secular rise in nominal wages while output in agriculture has fluctuated. Second, growth in nominal and real wages of unskilled labourers (for example in ploughing, harvesting and picking) has powered ahead of those in skilled work (carpenters, masons, tractor drivers and blacksmiths being prominent examples).
These are not happy trends. The first trend raises questions about the sustainability of this increase in wages. It has been commented widely that these increases are largely due to the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS). The data now allows one to make meaningful comparisons on this count. Since the bulk of the deployments under MGNREGS are in the unskilled work category, it is not surprising that wages for this class of workers have risen faster than skilled ones. Additionally, these wage increases are higher in states where MGNREGS employment is higher (Rajasthan, Tamil Nadu and Andhra Pradesh among others) than in those where it is lower (Haryana and Himachal Pradesh, to give two examples).
The issue with MGNREGS and other programmes to bolster rural incomes has largely to do with sustainability. Even if one ignores the fiscal costs associated with these efforts as well-deserved expenditure on social welfare, these programmes are nothing more than political commitments. In spite of the enormous expenditure, they have not linked the rural economy to urban or other high productivity regions: if anything they have broken the link between the two. Had this money been used to impart skills to citizens in rural areas so as to equip them for better jobs, the results would have been different. The wage-output and wage-productivity gap would not have led to fears of such expenditures fuelling inflation. Admittedly, this is a difficult task. But who said that ending the rural-urban divide would be easy?
In the end, this government went in for a shortcut. That has worked well in creating an artificial wage floor in rural areas. To an extent, that is a source of comfort. The question, as before, is about its sustainability.
How sustainable are the increases in rural wages? Tell us at email@example.com