Is the worst over for rural economy?

Four of the 6 large states have seen uptick in rural wages, following equally sharp increase in coverage of the rural employment guarantee scheme.

After months of stagnation, rural wages have started inching up, albeit marginally. Coinciding with the renewed push for the rural employment guarantee scheme in the second half of 2015, rural wages have shown a marginal uptick since August. It remained flat between December 2014 and July 2015.

In August last year, jobs provided under the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) rose 35 per cent compared to a year ago.

The Business Standard analysed rural wages and MGNREGS data of six large states for September, October and November to see whether there is any correlation between the two. These three months were chosen because of the availability of data. No data on rural wages is available for December.

Four of the six large states have seen uptick in rural wages, in some cases quite sharp, following equally sharp increase in coverage of the employment scheme. Tamil Nadu exhibited a negative correlation probably because of recent floods in the state.

In Bihar, rural wages grew by nearly 10 per cent in these months, compared with the same period a year ago. The number of households provided jobs under MGNREGS grew by more than 100 per cent during these three months.

Madhya Pradesh too saw a rise of more than 10 per cent in rural wages in September and October and a modest rise in November, according to Labour Bureau data. Number of households covered under the MGNREGS has been consistently going up in the state since September.

Rajasthan recorded growth of eight per cent in rural wages in September and very modest growth in October and November despite providing substantially more jobs under the MGNREGS, compared with a year ago.

In Maharashtra, rural wages have remained flat and so has the number of beneficiaries from the employment scheme.

Uttar Pradesh and Tamil Nadu, however, have bucked this trend. In the most populous state of Uttar Pradesh, rural wages grew in excess of 10 per cent despite a fall in the number of MGNREGS jobs in October and November. The state, however, saw substantially more households covered under the scheme in the preceding months of May, June, July, August and September. The uptick in rural wages could be a result of that.

The case of Tamil Nadu is different from other states as rural wages here have fallen despite substantial increase in coverage of MGNREGS in all months since August 2015.

Positive correlation between MGNREGS coverage and rural wages suggests that at least a section of population may get partial relief from acute rural distress. Business Standard reported a few days ago that the rural job scheme is likely to see a record allocation in the forthcoming budget to boost rural consumption. If so, it may result in further recovery in rural wages.

Does it mean the worst is over for the rural economy? Experts are not so optimistic as yet. ICRA’s senior economist Aditi Nayar says “Rural wage growth has trailed rural CPI inflation in several months of 2015, squeezing demand of households that derive a dominant share of their income through wages. The unfavourable trends in rabi sowing suggest that demand of farm households that are dependent on crop cultivation may remain slack in the immediate term.”

CARE ratings chief economist Madan Sabnavis is of the view that increasing allocation for rural job scheme alone will not solve the problem unless “wages given are properly indexed to consumer price inflation for rural areas.”


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