Rural wages growing at a sluggish pace

Data shows that despite a rise in farm activity, nominal wages are yet to pick up, most likely due to cash crunch following demonetisation


The agricultural ministry has estimated foodgrain production at 272 million tonnes in 2016-17. Photo: Pradeep Gaur/Mint
The agricultural ministry has estimated foodgrain production at 272 million tonnes in 2016-17. Photo: Pradeep Gaur/Mint

New Delhi: Despite a revival in the farm economy following a normal monsoon last year and significantly higher sowing of winter crops, rural wages are growing at a sluggish pace, shows data from the labour ministry.

In December 2016, during the peak of the winter sowing season, nominal wages for ploughing grew 4.3% year-on-year to Rs292 per day, shows the data released earlier this month. While this is higher than the 3.9% growth seen in December 2015 when a widespread drought crippled the farm sector, it is lower than the 6.6% growth in December 2014, and markedly below the high growth seen in 2013 (26%) and 2012 (18%), when the monsoon was normal.

The data shows that despite an uptick in farm activity and an estimated record production in 2016-17 of key crops like rice, wheat and pulses, nominal wages—an indicator of rural demand and incomes—are yet to pick up, most likely due to the cash crunch following demonetisation of high-value banknotes in November.

Based on higher than normal (five-year average) sowing of rabi crops and a record kharif production, the agriculture ministry has estimated foodgrain production at a record 272 million tonnes in 2016-17, over 8% higher than the year before. In January, the government estimated that the agriculture growth rate would bounce back to 4.1% (in 2016-17) after a dismal 1.2% the year before and a 0.2% contraction in 2014-15.

However, nominal wages continue to be sticky, implying only a marginal rise in real wages, despite a record Rs53,000 crore spent on the rural employment guarantee scheme during 2016-17.

Even for non-agricultural occupations like masonry, daily nominal wages grew 6% in December 2016 (year-on-year). This is similar to the growth seen in December 2015, a drought year, but significantly lower than the 21% and 17% growth in nominal wages in December 2013 and 2012, respectively.

“The rebound in agriculture-related works and a good monsoon should have led to higher demand for labour and pushed wages up, but this did not happen due to the acute cash crunch during November and December,” said Himanshu, associate professor at Jawaharlal Nehru University, Delhi, and a columnist with Mint.

“However, as the economy is re-monetized (cash supplies reach normal levels) we may see a revival in rural wages and consumption. But often, impacts of shocks like demonetisation are sharp, while a recovery may take longer. The slowdown in construction and non-agriculture activities in rural India may linger despite higher budgetary allocations for rural programmes,” he said.

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