Rising rural wage may boost UPA’s chances

For all the current gloom about the economy, the 2011-12 data on employment and consumption shows a remarkable one-third increase in average household consumption over two years, well above the rate of inflation. This will fuel Congress hopes to fare better in the 2014 election than opinion polls suggest.

Four trends stand out. First, poverty is falling sharply. Second, wages are rising impressively. Third, people are shifting from cereals to superior foods. Fourth, contrary to popular perception, the employment guarantee scheme (MNREGA ) has not been the key driver of higher wages.

The government has not yet provided a firm figure for the poverty ratio in 2011-12 compared with the last survey in 2009-10. But estimates from limited data suggest that the poverty ratio has fallen from 29.8% to just 24-26%. Earlier, poverty was falling by 0.75 % per year. This may have accelerated to 2% per year.

The most comprehensive consumption measure shows rural monthly spending per capita up from Rs 1,053 to Rs 1,430. For rural casual labour, other than in public works, male wages rose from Rs 102 to Rs 149, and female wages from Rs 69 to Rs 102. Urban trends were similar. Remarkably, casual wages grew faster than average national consumption: the poor fared disproportionately well. However, female wages grew more slowly than male wages.

Surprisingly, higher wages did not attract more people into the workforce. Over the two years, the male rural workforce increased by only 2.7 million, while the female rural workforce actually declined by 2.7 million. The unemployment rate rose slightly from 2.0% to 2.2%, but both rates are very low. The biggest problem is not lack of jobs but lack of workers. The optimistic explanation is that millions of youngsters have chosen to study instead of working. The pessimistic explanation is that women find work conditions unsafe or unsuitable.

Some analysts fear that rural women are being displaced by growing mechanization. Punjab farmers are switching to mechanical rice transplanters, and combine harvesters are spreading even in Bihar. But rural wages are rising sharply, contradicting the theory that machines are causing unemployment. Rather, the scarcity of labour is forcing farmers to mechanize. We need more research to explain the abysmally low participation of women in the workforce, down from almost 30% in 2004 to just 22% today.

In urban areas, female participation is a pathetic 15%. For this to happen at a time of sharply rising wages — which should normally attract more women to work — is a huge unsolved puzzle. MNREGA is targeted at women, yet rural female participation has plummeted.

Food consumption patterns have been changing dramatically . Between 1993-94 and 2011-12, the share of cereals in consumption halved from 24.2% to 12% in rural areas, and from 14% to 7.3% in urban areas. The share of non-food items shot up from 36.8% to 51.4% in rural areas, showing growing prosperity. Rural folk have shifted to superior foods. What’s up is the share of beverages, eggs, fish, meat, fruit and nuts.

Clearly, Indians as a whole have more than enough cereals and are moving to superior foods and consumer durables and services. The shift is evident in all income groups. The Food Security Bill aims to expand subsidized cereal supply from 40% of the population to 67%. Clearly this is a middle-class giveaway, unrelated to food security.

In 2004, only 2% of Indians said they were hungry any time of year. These are the people needing food security, not the middle-class. However, while hunger is limited, malnutrition is widespread. People need additional iron, vitamins and proteins. But the Food Security Bill targets only cereals.

In its initial years, MNREGA typically paid higher wages than the minimum wage. Indeed, many states raised their minimum wage rate sharply on finding that the Centre would foot the MNREGA bill.

Earlier, when states raised the minimum wage for political reasons, market rates did not move at all. Farmers dismissed the minimum wage as a gimmick. But today, market rates for casual labour have risen well above MNREGA rates. In 2011-12, MNREGA paid on average Rs 112 to males and Rs 102 to females. This was well below the open market rural wage of Rs 149 per days for males, and marginally below the rate of Rs 103 for females. The main reason seems to be fast GDP growth for a decade. All Asian miracle economies achieved rising wages through fast GDP growth, not employment schemes. India seems no different.

What are the political implications? Congress is reeling from unending scams, and the slowing economy worsens the anti-incumbent mood. Yet rising rural prosperity might just limit the electoral damage. This does not mean the Congress will win, merely that it may lose less badly than opinion polls suggest.

2 thoughts on “Rising rural wage may boost UPA’s chances”

  1. Dear Sir,

    The welfare measures like MNREGA and FOOD bill have other dangerous consequences besides creating huge fiscal deficit that our population is becoming KAAMCHOR
    When you get basic food for family in rs .200 and your minimum expenses in a typical village house are met in 2000 rs.,people are getting tempted to resort to laziness ,drugs and developing habits of remaining without work. Under Nrega,they get some money without any responsible working and such schemes can have over a decade serious negative impact on availability of productive labour. The NGOs and ill informed politicians are ruining the coming generations

  2. Mr.Bansal is absolutely right. this wrong economis policies of Sonia Gandhi.It came from her wrong belief that majority of Indians are incompetent to earn a living.So that,if she feed this 67% population rotten grain, they will simply vote for congress.She lives in a fool’s paradise.

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