Rural Wage Stagnation Amid Economic Growth

India’s economy has grown at a healthy rate of 4.6% annually from 2019-20 to 2023-24, with even stronger growth of 7.8% in the last three fiscal years. The agricultural sector, which is crucial for rural livelihoods, has also grown steadily at an average rate of 4.2%. However, despite this economic progress, rural wages have not kept pace with inflation.

Rural Wage Growth vs. Economic Growth

• Nominal Wages: From 2019 to 2024, rural wages grew by 5.2% on average annually in nominal (current value) terms. For agriculture, this figure was slightly higher at 5.8%.
• Real Wages: When adjusted for inflation, the situation looks different. In real (inflation-adjusted) terms, rural wages grew at only -0.4% per year on average, indicating stagnation. For agricultural wages, the growth was slightly better at +0.2%.

In simpler terms, while wages have increased in name, the rise has not been enough to outpace inflation, meaning that the purchasing power of rural workers has not improved significantly.

Why Are Rural Wages Stagnant?

There are two main reasons why rural wages are stagnating despite the economy’s growth:

Rising Labour Force Participation Among Women

• The Labour Force Participation Rate (LFPR) measures the percentage of the working-age population (15 years and above) that is either employed or actively seeking work. Over the past few years, there has been a significant increase in the number of women joining the workforce, particularly in rural areas.
  • Female LFPR in Rural Areas: In 2018-19, the female LFPR in rural India was 4%. By 2023-24, this had risen to 47.6%. This is a major shift, showing that more women are willing to work.
• The reason for this increase is largely attributed to government programs like Ujjwala, Saubhagya, Swachh Bharat, and Har Ghar Jal. These initiatives have improved access to clean cooking fuel, electricity, water, and sanitation. This has reduced the time women spend on household chores, like collecting water or firewood, allowing them to take up more productive work outside the home.
• However, the downside of this increase in the workforce is that more people are now available for work. More workers, especially women, are willing to work at the same or even lower wages, which has led to a downward pressure on real wages in rural areas.

Shift Towards Agriculture

• Another key factor is where the new workforce is getting jobs. As more women enter the rural labour market, a significant portion of them is finding employment in agriculture. From 2018-19 to 2023-24, the share of agriculture in rural employment rose from 1% to 76.9%.
  • The problem with this is that agriculture is a labour-intensive sector with low productivity. In other words, each additional worker in agriculture adds less value to the output, leading to lower wages in agriculture.
  • As rural India has not seen a proportional increase in jobs in non-farm sectors (e.g., manufacturing or services), the majority of new entrants into the workforce are stuck in agriculture, which has limited capacity for high-wage growth.

Capital-Intensive Growth

• Economic growth in India in recent years has been increasingly capital-intensive. This means that industries like infrastructure, steel, and cement require more machinery and less human labor.
• The growth in such sectors generates wealth, but not enough employment for a large number of workers.
• As a result, the benefits of economic growth are accruing to capital owners (firms and industrialists) rather than labourers.

The Mitigating Factor: Income Transfer Schemes

While wage growth has been slow, the government has introduced income transfer schemes to provide additional support, especially to women and rural families. These schemes include:

• Direct Income Transfers: The government has provided annual income support of Rs 6,000 per year to 11 crore farmers through the PM-KISAN scheme. Additionally, free grain distribution has benefited over 80 crore people.
• State-Specific Schemes: Many states have implemented or announced schemes that provide direct financial support to women in rural areas. For example:
  • Maharashtra’s Ladki Bahin Yojana: Transfers Rs 1,500 per month to women from families with an annual income below Rs 2.5 lakh. This amount can be crucial for rural women, whose average daily wage in August 2024 was Rs 311.5.