Rural wages continue to rise, but the pace of that growth is moderating, says Nomura in its research note
Rural wages continue to rise, but the pace of that growth is moderating. With real rural wages moderating, both rural demand and inflationary pressures should moderate in the medium-term, says Nomura Financial Advisory and Securities (India) Private Limited in its research note on rural wages and inflation.
Several factors, including the government’s employment guarantee scheme and indexing rural wages to CPI inflation, have boosted rural wage growth and shifted the terms of trade in favour of the rural sector, according to the research note. However, the slowdown in urban areas is now starting to feed through into slower rural wage growth.
According to Nomura, over the last few years, rising real rural wages have both supported rural demand and increased the cost of production, thereby making inflation sticky. A moderation in real rural wages should cause rural demand to moderate, but medium-term inflationary pressures should moderate as well, as the cost of production (wages) eases.
The Nomura research note gives the following statistics: Growth in the average daily wage rate for agricultural labourers moderated to 13.1% year-on-year (y-o-y) in August 2013, significantly slower than 18.5% y-o-y in 2012 and 23.4% in 2011. After adjusting for inflation, the decline was even more stark — real rural wage growth moderated to -0.1% y-o-y in August from 9.3% y-o-y in 2012 and 13.4% in 2011.
The overall picture on rural wage growth is summarised in the following chart:
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