Despite economic recovery, real rural wage growth remains flat in FY23

Real rural wage growth has virtually stagnated or has been negative in the first five months of the current financial year (2022-23) despite a visible uptick in economic activities elsewhere.

The growth in nominal terms has been steady but the sharp rise in inflation seems to have eaten into the increase.

Data sourced from the labour bureau shows that real rural wage growth of general agriculture labourers (male) – which is considered as representative of the wage scenario in rural areas, has seen an increase of less than one per cent since April 2022, with the first two months of the financial year showing a de-growth.

 

The rural areas that showed some signs of an uptick in wage growth right after the first Covid-induced lockdown was lifted have gone back to their old pattern of very nominal increases or even de-growth in some months.

This is perhaps also manifested in continuing demand for work under the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) in rural areas. The demand for work, however, is less than the peaks of 2021-22 and 2020-21 but is still higher than the pre-Covid years of 2019-20 and 2018-19.

MGNREGA Work Demand

Nearly 31.67 million households demanded work under MGNREGA in June, which tapered off to 20.41 million in July and then to 15.97 in August before rising marginally to 16.73 million.

These numbers are lower than the 2021-22 financial year but when compared to the pre-pandemic year of 2019-20 the work demand is still on the higher side. 

In 2019-20, around 25.43 million households demanded work under the scheme in June, which dropped to 18.35 million in July, followed by 14.59 million in August, and 14.26 million in September.

This, according to some experts is a manifestation of the continuing demand for MGNREGA work in rural areas. It also reflects the not-so-rosy job scenario in the non-farm sectors, though the situation is significantly better than the pandemic years of 2020-21 and 2022-23.

Rural Inflation

Inflation in rural areas as measured by the Consumer Price Index (CPI) has been consistently above the 7 per cent mark since April 2022 barring a minor blip in the month of July.

The high inflation is mainly due to an increase in cereal prices, though food items such as edible oils, milk meat and fats and also other non-food items including fuel have also been contributors.

CPI-based inflation (combined rural and urban) for the month of September surged to a five-month high of 7.4 per cent largely due to a spike in food inflation, which jumped to a 22-month high of 8.6 per cent for the same period.

In this, the rural inflation was 7.56 per cent while urban inflation was lower at 7.27 per cent.

Since January 2022, rural inflation has been consistently higher than its urban counterpart implying that people in rural areas are bearing the brunt of high prices more than their urban partners.

 

Is hope around the corner?

The forthcoming kharif harvest does offer some hope as far as food inflation is concerned.

But, how far and how much will the prices soften remains to be seen because stock positions of wheat and to some extent rice indicate that the centre might not be able to intervene as effectively as in previous years in the open markets to cool down prices.

Last year, the centre liquidated around 7-8 million tonnes of wheat in the open market to cool down prices and also lower its inventory.

This year since April not a single grain has been sold from its inventory for open market sales and atta and flour makers have to rely on the privately held stocks of wheat to meet their annual requirements.

Among other items, prices of oilseeds and pulses are expected to trade lower in the coming months, while maize and paddy might stabilise before firming up again from their current levels, as per trade and market sources.

Wheat and atta prices though will remain a matter of concern for those who are outside the ambit of the ration programme, though the Centre has said it has inventories to intervene in the market as and when prices cross a certain threshold and might even consider bringing the import duty to zero.