Demonetisation killed rural wage growth, shows Ind-Ra data

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Updated: August 24, 2018 1:41:00 PM

India's rural wage growth has slumped from an average of 11% in the financial years 2013-15 to a mere 0.45% in the financial years 2016-18, due to the negative impact of demonetisation, a report said.

Rural wage growth killed by demonetisation; fell from 11% to mere 0.45% in last 3 years, show Ind-Ra dataRural wage growth killed by demonetisation; fell from 11% to mere 0.45% in last 3 years, show Ind-Ra data (Image: IE)

India’s rural wage growth has slumped from an average of 11% in the financial years 2013-15 to a mere 0.45% in the financial years 2016-18, due to the negative impact of demonetisation, a report said. An analysis of 25 different occupations in rural areas by India Ratings showed that rural wage growth slumped to decimal points from double-digit in last three years despite government support.

India Ratings noted that even as there were efforts to hike rural wage and support rural employment scheme, they merely ended up shielding nominal wages from falling post demonetisation. “While these measures may have helped shield the nominal wages from falling, they did not provide the necessary impetus to strengthen real wage growth and reduce rural distress in a significant way,” the report said.

“In August 2016 the government had raised the minimum wage for non-agricultural labourers by 42%. As a result, when demonetisation hit the cash-based rural economy, it did not have a drastic effect on non-agricultural rural wages. In addition, the highest ever budget allocation for Mahatma Gandhi National Rural Employment Guarantee Scheme was made in the period after demonetisation to shield the rural/informal economy from the after-effects of the regulatory move,” the report explained.

Fall in rural wage growth was not limited to major agricultural occupations. Even nominal wage growth rates for animal husbandry, which were robust earlier, fell from 21.48%-34.77% in FY13-15 to 7% FY17-18. Notably, India suffered two consecutive drought years in 2014-15 and 2015-16, which also led to farmers’ distress.

However, the largest chunk of the rural population is made of daily wage earners, not farmers, the report said, adding that an equal focus on both rural wages and farm income is vital to relieve rural distress. On the decision to hike minimum support price for the Kharif season, India Ratings said that it will provide only ‘notional comfort’. “It requires a far more concerted effort including a strategy to augment rural infrastructure,” the report said.

 

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