Whatever be the reasons, the fact is that the past two years have been a disaster for rural labourers, who constitute one of the most vulnerable sections of the society
Real wages of rural labourers, probably the poorest of the poor, have been shrinking in the past two years. In December 2015, average real rural wages (wages adjusted for inflation) were down 1% from a year ago. What’s more, in December 2014 too, they were lower by almost 1% from a year ago.
As the chart shows, real rural wages grew rapidly in 2011 and rose substantially in 2012. The deceleration started in 2013, when inflation shot through the roof, but the reversal started in the second half of 2014, when growth in real rural wages slipped into a negative territory.
They continued to fall till February 2015 after which they moved up a little. Since September 2015, however, growth in real rural wages has been negative. Note that the fall in real wages has occurred despite inflation coming down.
The data on growth in average-adjusted wages has been taken from the Centre for Monitoring Indian Economy database and the Consumer Price Index-based inflation for agricultural labourers has been taken to arrive at the real wage growth rates.
When real wages were rising by leaps and bounds, there was plenty of discussion about its reasons, with some pundits blaming the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS), others opining that high growth in the construction sector was the reason, while some said it was because of high agricultural support prices that trickled down to farm wages. Demographers pointed also to the fall in the labour participation ratio as women withdrew from the workforce. The worry at that time was that these high wages were fanning inflationary fires.
But there hasn’t been much talk about the contraction in rural wages, other than to lament its effect on rural consumption demand. The earlier forces that led to higher rural wages are now operating in reverse. Hemindra Hazari, an independent analyst, pointed out, “Minimum support prices have increased very modestly, the drought has affected demand for agricultural labour and the central government has only grudgingly accepted the MGNREGS."
Whatever be the reasons, the fact is that the past two years have been a disaster for rural labourers, who constitute one of the most vulnerable sections of the society.
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