The Indian economy has grown at an average annual rate of 4.6% from 2019-20 to 2023-24, and 7.8% in the last three fiscal years (April-March) alone. The farm sector’s growth has averaged 4.2% and 3.6% for these respective periods. However, these macro growth numbers are not reflected in rural wages.

• The Labour Bureau compiles daily wage rate data for 25 agricultural and non-agricultural occupations, collected every month from 600 sample villages spread over 20 states. The accompanying charts show year-on-year growth in wages, taking a simple all-India average rate for rural male labourers across all occupations, from April 2019 to August 2024.
• The wage growth has been estimated in both nominal (current value) and real (after deducting annual inflation based on the consumer price index for rural India) terms, and for all rural as well as agricultural occupations. The latter includes ploughing/tilling, sowing, harvesting/threshing/winnowing, picking of commercial crops, horticulture, animal husbandry, watering/irrigation, and plant protection operations.
• The average nominal year-on-year growth in rural wages during the five years ended 2023-24 worked out to 5.2%. It was higher, at 5.8%, for only agricultural wages. But in real inflation-adjusted terms, the average annual growth was -0.4% for rural and 0.2% for agricultural wages during this period.
• Even for the current fiscal (April-August), overall rural wages have risen only 5.4% year-on-year in nominal and 0.5% in real terms. The corresponding growth rates in agricultural wages have continued to be higher, at 5.7% and 0.7% respectively.

The paradox

• It raises the obvious question: Why are real rural wages stagnant, if not negative, when the country’s GDP and even farm sector growth have been decent-to-good in recent times?
• One explanation has to do with rising Labour Force Participation Rates (LFPR) among women, especially in rural India. LFPR is the percentage of the population aged 15 years and above that is working or seeking/willing to work for a relatively long part of a particular year. The all-India average female LFPR was only 24.5% in 2018-19. It rose to 30% in 2019-20, 32.5% in 2020-21, 32.8% in 2021-22, 37% in 2022-23 and 41.7% in the latest official Periodic Labour Force Survey for 2023-24 (July-June).
• Even more impressive has been the increase in the rural female LFPR: From 26.4% in 2018-19 to 33%, 36.5%, 36.6%, 41.5%, and 47.6% in the following five years. During this period (2018-19 to 2023-24), the male LFPR has gone up only marginally, from 75.5% to 78.8% for all-India and from 76.4% to 80.2% for rural India.
• The Finance Ministry’s Economic Survey for 2023-24 has attributed the sharp jump in the rural female LFPR (21.2 percentage points since 2018-19) mainly to the Narendra Modi government’s schemes such as Ujjwala, Har Ghar Jal, Saubhagya, and Swachh Bharat. These flagship programmes, the survey claims, have not just substantially expanded household access to clean cooking fuel, electricity, piped drinking water, and toilets. They have also freed up rural women’s time and effort that went into fetching water or collecting firewood and dung. Being able to cook faster using LPG cylinders or even electric mixer grinders has enabled them to deploy their energies towards more productive outside employment, instead of only mundane household tasks.
• The above freeing up of women’s time and rise in female LFPR have, however, also ended up significantly boosting the aggregate size of the rural workforce. The resultant rightward shift of the labour supply curve – more people willing to work at the same or lower rates – has then exerted downward pressure on real rural wages.

Less labour-intensive growth

• A second, less-favourable, explanation looks at not the supply, but demand side of labour.
• While the rural female LFPR has soared between 2018-19 and 2023-24, so has agriculture’s share in the employment of this workforce – from 71.1% to 76.9% over this period. Thus, although more women are entering the rural labour force, they are working in greater numbers on farms. The movement is from home to field, not to factory or office.
• That, in turn, has probably to do with the nature of GDP growth. The economy may be churning out more goods and services but that process is becoming increasingly capital-intensive and labour-saving as well as labour-displacing. If growth is coming from sectors or industries requiring fewer workers for every unit of output, it translates into a rising share of income generated from that accruing to capital (i.e. profits of firms) as against labour (wages/compensation of employees).
• It is not surprising, therefore, that the new entrants into the labour force, specifically women, are mostly finding employment in agriculture. This is a sector where marginal productivity (output per worker) is already low; the supply of more labour would only further depress wages. The fact that rural non-agricultural wages have grown even less – actually fallen in real terms – shows a worse picture for non-farm labour demand.

The mitigating factor

• Capital-intensive, investment-led growth is good for cement, steel, and infrastructure-developing companies such as L&T, Adani Ports, KEC International, Bharat Forge, Finolex Cables, Kalpataru Projects, and PNC Infratech.
• But it isn’t that good for fast-moving consumer goods, home appliances, durables, and two-wheeler makers. They benefit more from growth that is labour-intensive and consumption-led. Their sales and profits get impacted when jobs and incomes do not exhibit growth commensurate with wider GDP measures – as is the case now.
• The one mitigation factor here, however, has been the income transfer schemes of both the Centre and state governments.