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Photo: Pradeep Gaur/Mint
Photo: Pradeep Gaur/Mint

Increased rural spend fails to cheer real rural wages

The recently released GDP data shows that the construction sector saw real growth of a mere 1.5% y-o-y in the June quarter

The Central government has raised wages for its own employees and mandated higher minimum wages, but the fact remains that real rural wages continue to fall.

This has happened despite all the talk about reviving India’s ailing rural economy, so much so that Prime Minister Narendra Modi earlier this year set a target to double farmers’ income by 2022. But certain things are easier said than done.

A recent Yes Bank report highlights that government’s rural spending has seen a marked uptick this year and so has spending on rural roads, while employment generation under MNREGA too has seen robust growth in the June 2016 quarter.

But these measures haven’t led to any rise in rural real wages yet. Real rural wages have been in the negative territory since October 2015 and continued to be so until May 2016. The data on growth in average-adjusted rural wages for men has been taken from the Centre for Monitoring Indian Economy (CMIE) database and the Consumer Price Index-based inflation for agricultural labourers has been taken to arrive at the real wage growth rates.

So, why have real rural wages not improved?

One of the reasons is modest rise in minimum support prices (MSP). On a year-on-year (y-o-y) basis, compared to an average rise of 21% y-o-y in the Kharif seasons of 2012 and 2013, MSPs increase since 2014 has been a mere 3%, shows HDFC Bank data.

The problem is that hiking MSPs could lead to higher inflation, as seen in the past during the United Progressive Alliance (UPA) regime and possibly this is the reason why the government is not in a rush to push MSPs higher, explain some experts.

Tushar Arora of HDFC Bank points out that migration and job opportunities in non-farm sectors have not been very encouraging, especially in construction and manufacturing, which is also hampering real rural wages growth. “Just to recall, growth in construction sector has slowed from 4.6% in FY14 to 4.4% in FY15 and further to 3.9% in FY16," he told Mint. The recently released GDP data shows that the construction sector saw real growth of a mere 1.5% y-o-y in the June quarter.

It is a telling commentary on government priorities that it has no compunction in raising wages for its own relatively well-off employees, but has no problems with rural wages, which affect the poorest of the poor, continuing to stagnate.

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