Rural wage growth moderating: Report

COIMBATORE: This would bring cheer to policymakers fighting stubborn inflation but could turn out to be a factor in polls to key states as well as general elections due next year. The pace of growth in rural wages is moderating. Worse still, real rural wages (adjusted for inflation) has seen de-growth in August this year.
Growth in the average daily wage rate for agricultural labourers moderated to 13.1% year-on-year (y-o-y) in August. This is significantly slower than the 23.4% y-o-y growth clocked in 2011 and the 18.5% y-o-y increase seen in 2012.
The decline was even starker after adjusting for inflation. Real rural wage growth declined 0.1% y-o-y in August compared to 9.3% y-o-y increase in 2012 and 13.4% growth in 2011, data compiled by Nomura India, a brokerage firm, showed.
Several factors, including the government’s employment guarantee scheme and indexing rural wages to CPI (consumer price index) inflation, have boosted rural wage growth and shifted the terms of trade in favour of the rural sector, according to Sonal Varma, an economist with Nomura India.
The slowdown in urban areas is now starting to translate into slower rural wage growth, he said. “Over the last few years, rising real rural wages have both supported rural demand and increased the cost of production, thereby making inflation sticky,” he stated.
With real rural wages moderating, both rural demand and inflationary pressures are likely to ease in the medium-term. “A moderation in real rural wages should cause rural demand to moderate, but medium-term inflationary pressures should moderate as well, as the cost of production (wages) eases,” Varma said.