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Resource centre on India's rural distress
 
 

Rural prosperity no mirage; real rural wages have grown 6.8% each year in last 4 years-A Gulati and AK Jena
-The Economic Times

Every concerned and right-thinking citizen of this country wants poverty to be reduced as early as possible. Governments and policymakers have given assurances, time and again, that they are making their earnest efforts in that direction.

Yet, there is a big debate in the country, ranging from the very definition of poverty to the number of people below the poverty line. Some academic stalwarts have devoted almost their whole lifetimes measuring and debating the issue.

We don't intend to enter that arena but look at it from a simpler and more transparent prism. Instead of going through the consumption route and measuring the calorie intake, as most poverty analysts do, we simply ask: what is happening to the real wage rates in farming where landless labour is working?

Since the largest mass of poor people is in rural areas, and they are the landless agricultural labourers, knowing about their real wages is critical to have an idea about probable changes in rural poverty. So, we try to look at the real farm wages during the period 2000-01 to 2011-12.

The real farm wages are derived for each agricultural year, July to June, by averaging wages over five types of farm operations - ploughing, sowing, weeding, transplanting and harvesting - first at the state level, and then deflating the nominal wages with the consumer price index for agricultural labour (CPI-AL) of each state separately, bringing them all at 2011-12 prices, and then finding a weighted average of 16 major states by attaching relative share of the state in total number of agricultural labour in the country.

These 16 major states comprise more than 93% of the farm labour force in the country. The results (see chart) are very interesting.
Rural Wage
During the period 2000-01 to 2006-07, the real farm wages fluctuated between a high of 117 per day in 2001-02 to 111 per day in 2006-07, both wage rates measured at 2011-12 constant prices. The average annual rate of growth in real wages during this period was -0.44%.

But since 2007-08, the period of 11th Five-Year Plan (2007-11), the real farm wages have been consistently rising, and increased from a low of 111 per day in 2006-07 to a high of 154 per day in 2011-12, with an average annual growth rate of 6.8% per annum in real terms.

This is heartening news for poverty watchers, as it is an indicator that poverty must have declined much faster during the period 2007-08 to 2011-12 than it may have during 2000-01 to 2006-07. Of course, this needs to be corroborated with other evidence, say, from consumption figures from NSSO data.

But given that NSSO data underestimates consumption, one indicator can be less reliable and, hence, this real wage rate data can be a useful tool to monitor how fast poverty could have declined in rural areas.

There are two issues these results raise: (a) what could be driving this upward movement in real farm wages during the period 2007-08 to 2011-12, and (b) what are its implications for farm policies, including minimum support price (MSP) policy for farmers? One can put forward various probable factors as hypotheses that could be driving this change.

These could be high overall growth in the economy, touching almost 8% per annum, especially in the construction sector, which grew at a faster pace during this period and is drawing labour from agriculture. Also, it could be high growth of agriculture GDP itself (3.4% per annum) during the 11th Plan - compared to just 2.4% in the 10th Plan and 2.5% in the 9th Plan - coupled with rising farm prices during this period, driven by global food inflation and followed by significant increases in MSPs of major crops. It could also be the intervention of government in rural labour market through MGNREGA that empowered rural labour to negotiate higher wages for farm work.

The relative impact of each of these probable factors needs further research. But suffice it to say that higher farm prices during this period have not harmed farm labour, in fact, this may have helped them as their real wages grew quite significantly.

It also makes common sense that if farmers get better prices for their produce, they are likely to pass on some of the benefit to farm labour. The trickle down perhaps works faster in rural areas where society is still more cohesive than in urban areas. 

The implication of this result is that if the trend continues for another five years or so, which looks probable given the rising investment in agriculture, the real cost of labour in agriculture will rise. In that case, other things remaining equal, the relative prices of capital to labour will start tilting towards labour, leading to increasing mechanisation of farms. This may require some capital subsidies to start with, but should eventually help in raising labour productivity in agriculture.

This could be a catalyst in alleviating poverty even faster. In order to ensure that farm mechanisation takes place in an economically-efficient manner, it is important to free up the land lease market so that a market-guided optimal holding size evolves, ensuring rational utilisation of land, labour and capital.

Further, to absorb rising labour costs, some upward adjustment may be needed in MSPs of more labour-intensive crops, such as paddy, jute, and so on, so that farmers' incentives and incomes don't suffer.

All in all, it appears that rising real farm wages may be good for the country in alleviating poverty, and whatever policies have triggered this change need to be pursued further with more rigour.

(A Gulati is chairperson and A K Jena is adviser at the Commission for Agricultural Costs and Prices. Views are personal)