Home/ Opinion / Columns/  Worker incomes in India are still signalling tough circumstances

Most recent estimates of national income present a mixed picture of our post-pandemic recovery. Economic growth in 2022-23 is expected at 7% with gross value added seen rising 6.6%. However, a sectoral break-up of the data suggests unevenness. Manufacturing is expected to increase by only 0.6%. What should also worry us is that this sector has seen a contraction for the second consecutive quarter. Data also suggests weakening in key drivers of demand, such as private consumption and exports.

Therefore, any exuberance based on India’s aggregate GDP data may be misplaced. This is also because our GDP data has shown significant fluctuations in provisional estimates compared to final estimates. Other than the uneven nature of growth, an uncertain external environment having spelt a decline in export growth over the last three months, sustained inflationary pressures and the vulnerability of agriculture to weather shocks are serious concerns as well. What also signals a need for caution is Indian data on income from multiple sources. These numbers do not offer the optimism seen in national accounts and this is a particularly important problem right now, given the continued weakness in consumption and investment.

Of the multiple sources of data on worker incomes, consider the periodic labour force survey (PLFS). The latest report was of 2021-22, released late last month. It shows that total income earned by workers is yet to recover fully to its pre-pandemic level of 2018-19. Compared to 2018-19, overall worker incomes in 2021-22 have increased a marginal 0.91% per annum. But it was not the same for all workers, with urban workers actually witnessing a real decline in total earnings of 0.1% per annum, while rural worker incomes recovered. Several other data sources confirm the vulnerability of worker incomes, particularly in urban areas and the non-farm sector.

Even rural wage data available from the labour bureau suggests a decline in rural non-farm wages compared to agricultural wages. As against an increase in agricultural wages of 1.8% in the last two years, non-farm wages have declined 0.3% per year. Compared to the pre-pandemic period, agricultural wages have seen a small increase nevertheless of around 1% per annum, but non-farm wages declined 0.5% per year. This is not surprising, given that the agricultural sector as a whole has been less affected by the slowdown and covid pandemic than the non-farm sector.

The decline in non-farm wages is not restricted to rural areas. It is, in fact, far more pervasive and the biggest impact is visible in urban incomes. Non-farm wages, in particular wages in manufacturing and construction, are good proxies for discretionary demand in the Indian economy, while a sustained weakness in non-farm wages, especially manufacturing, raises questions on the sustainability of economic growth. Estimates of wages in urban areas from the PLFS also show urban regular wages declining 1.2% per annum between 2018-19 and 2021-22. For the self-employed in urban areas, the decline is significant, at 2.4%.

Unlike rural wages, there is no corresponding series on urban wages from the labour bureau, which offers information on wages in the non-farm sector by industry groups. The Wage Rate Index (WRI) series is among the labour’s oldest wage-data series; it tracks wages in various industry groups, including manufacturing and mining. The series was restarted with a new base in 2016 and gives half-yearly wage rates. The most recent data from this series is for the first half of 2022. Estimates of real wages from the WRI show a decline in real wages of 0.6% per annum in the manufacturing sector, compared to the pre-pandemic first half of 2019. The decline in all wages is larger at 1.8% per annum during the same period, but similar to what is reported by the PLFS. Various data sources confirm the decline in non-farm wages, particularly manufacturing.

Estimates of income and wages are as much a yardstick to gauge economic growth as they are barometers of the strength of our economic drivers. In fact, our wage data confirms the vulnerability of the manufacturing sector and urban economy, as is evident from the national accounts data. The only conclusion consistent with multiple indicators from diverse sources is the need to focus on reviving worker incomes, particularly in the non-farm sector. This is essential, given not only the large contribution of domestic consumption and investment to output growth, but also the dominant role of the country’s non-farm economy in reducing poverty and vulnerability.

Himanshu is associate professor at Jawaharlal Nehru University and visiting fellow at the Centre de Sciences Humaines, New Delhi

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Updated: 24 Mar 2023, 12:47 AM IST
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