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The truth behind rural wages in India

Real wages in the hinterland have stagnated despite zooming economy

Akshat Kaushal  |  New Delhi 

While the economy has zoomed along at an average of 7.2% of GDP in the last decade, real wages in the hinterland have stagnated.

You would imagine that after a decade of impressive economic growth averaging around 7.2 per cent, rural populations would be beneficiaries to this story. However, wage patterns considered over the last ten years show that real wages (wages after adjusting inflation) in the rural economy have either decreased or remained unchanged over the decade. In other words, while nominal wages have increased, they have failed to match the subsequent growth in economy.

Data compiled by Business Standard in eight occupations —ploughing, carpentry, tractor driver, sweeper, unskilled worker, cobbler, mason and blacksmith (statistics for four are shown in the graph above) —over the last ten years showed that only three occupations saw a marginal increase in real wages. These were ploughing, tractor driver and unskilled labourer, which grew at an annual rate of 0.80 per cent, 0.42 per cent and 1.19 per cent, respectively. The other five occupations —carpentry, sweeper, blacksmith, mason and cobbler—were earning less in 2010 than they did in 2000. Significantly, sweeper and cobbler, which are the least earning occupations, are also the ones that have traditionally being constituted by the scheduled castes and scheduled tribes. (Click here for graphs)

In terms of nominal wages, the highest Compounded Annual Growth Rate (CAGR) was witnessed for an unskilled labourer, and in ploughing, both which grew at 7.48 and 7.07, respectively. Significantly, a sharp increase in nominal wages occurred in 2008-09 and 2009-10, with wages across all occupations registering a substantial growth.

Another trend that emerges from the data is that the occupations which were commanding the highest wages ten years ago continued to do so at the end of the decade. In 2000, a mason was paid the highest wage of Rs 182 a day, followed by a carpenter who was getting Rs 166 for a day's work. In 2010, too, a mason was being paid the maximum followed by carpenter. However, as mentioned before, the inflation-adjusted wage of both these professions registered a decline.

What can these figures tell us about the rural economy? “From the wage patterns it appears to me that there is no shortage of labour in the rural economy. Significantly, it points that very little skill development is happening and that is a concern for me,” says Pronab Sen, Principal Adviser, Planning Commission. “We don't expect these patterns to change. There are some activities which require better skills and some require low skills. The wage differentials probably reflect that. Carpentry and masonry are skilled works that is why they are paid high wages compared to others,” says Himanshu, associate professor at the Centre for the Study of Regional Development, Jawaharlal Nehru University.

Compared to any other occupation, the most impressive growth in real wages was witnessed for an unskilled labourer. From 2000-01 to 2009-10, the real wage for an unskilled labourer grew 11.23 per cent—highest amongst all categories. In terms of CAGR, it grew at 1.19 per cent annually, which was also the highest amongst all categories.

However, both Sen and Himanshu say that apart from the lack of skill development, NREGA has also been playing a significant role in increase of wages for unskilled labourer. In 2008, when the NREGA was implemented across the country, the real wages for an unskilled labourer saw the maximum rise of around 6.5 per cent. The feat was repeated next year too, with the wage increasing by another four per cent. In 2009-10, the wages for an unskilled labourer reached Rs 101.86, almost equal to the wage guaranteed by the NREGA. “The data shows that the sharp increase in the unskilled labour wage rate in the last three years corresponds to the rolling out of NREGA,” Sen said.

Praveen Jha, associate professor at the Centre for Economic Studies and Planning, agrees with Sen and adds that there were also spillover effects of this trend. “The role of the NREGA in even being reflected in wages of other occupations as well,” says Jha.

The data suggests that ever since 2006-07, the wages have rebounded from the previous years' decline. Whereas, in 2006-07, all wages recorded a decline, 2007-08 saw a reversal of pattern. Wages in at least four occupations, ploughing, tractor driver, mason and unskilled labourer have been in the positive ever since.

However, economists say that these growth rates are hardly impressive.“The difference in the rise of wages and the growth of economy is very alarming. This clearly points to distress in the rural economy,” says Amitabh Kundu, professor at the Centre for the Study of Regional Development, Jawaharlal Nehru University. "The wage patterns also suggests disparity in the urban and rural sector which isn't good news for the economy of any country," Kundu adds.

Surjit Bhalla, Chairman, Oxus Investments however believes that the growth in economy is being reflected in the wages, but thinks that there is still scope for improvement.“If the economy is growing at seven per cent, then the rise in wages has matched that growth. The growth in economy is having a trickle-down effect. However, as inflation has been high it is not being reflected in the real wages,” he said.

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First Published: Fri, October 14 2011. 01:46 IST