Real Wages Declined for Rural Indians in 2022, a Year When the Economy Somewhat Recovered
The year 2022 was supposed to mark the recovery of the Indian economy from the Covid-19 pandemic and lockdowns of the preceding two years. However, the Russian invasion of Ukraine in February pushed up prices of food, fuel and fertilizer worldwide. In India consumer price inflation, which had declined to under 5 percent in the September-November period of 2021, has steadily increased, staying above 6 percent throughout 2022.
TABLE 1: All India Rural Real Wage Rates in 2021 and 2022
Sources: Inflation data, Ministry of Statistics and Programme Implementation; rural wage data, labour statistics, Ministry of Labour and Employment
The table above shows that real wages in rural India turned negative in 2022 after some increases in 2021. The implications for purchasing power are all too obvious: As the rate of inflation – driven by food and fuel costs - topped the rate of increase in wages in 2022, purchasing power declined.
Chart 1: Inflation vs Real Wages
Source: CPI (Rural) data from MOSPI; Rural wage rate data from Labour bureau
The Economic Survey 2022-23 has confirmed the decline in rural wages. The document, released in January by the Finance Ministry as part of the budget documents says, “Growth in real rural wages has been negative due to elevated inflation.” It further adds that nominal rural wages have increased at a steady positive rate during FY23 (till November 2022). The year-on-year (YoY) rate of growth of nominal wage rates in agriculture was 5.1 percent for men and 7.5 percent for women from April-November 2022. In non-agricultural activities, the growth of nominal wage rates was 4.7 per cent for men and 3.7 per cent for women, during the same period.
Nominal and Real wages in Rural India
Elevated inflation has affected the bottom half of the population more. A report by India Ratings and Research says that in 2022 “the effective inflation faced by the bottom 50% of the population (both in rural and urban areas) during April-December 2022 was 40bp higher than the headline retail inflation”. A basis point is a measure of percentage and 1 basis point (bp) is a hundredth of 1 percent, so 40 bp is 0.4 percent. “The effective inflation faced by the bottom 50% of the population (both in rural and urban areas) stood at 7.2%”. Ind-Ra’s analysis suggests that in the nine-month period between April and December of last year, the poorest 5 percent of urban residents experienced an inflation rate of 7.4 percent, while their rural counterparts faced a rate of 7.3 percent. In contrast, the richest 5 percent in urban India faced an effective inflation of 6.7 percent, while the rural richest 5% experienced 6.6 percent. This is because the inflation spike after the Russian invasion was primarily driven by food and beverages, and as one moves up the expenditure strata, their share in the consumption basket declines and so does the intensity of inflation.
Anecdotal reports point to the loss of purchasing power in rural India. Unilever global chief executive Alan Jope said in February that high inflation impacted demand from low income consumers in Indian villages even as growth remains stronger in cities. Over the past few months Hindustan Unilever has slashed prices of soaps and tea. FMCG companies reported a dip in rural demand by as much as 17 percent at the height of the festival season in November last year. The sector itself grew at a slower pace of 7.6 per cent, in the October-December 2022 quarter, according to market research firm NielsenIQ, and in the quarter before that, as sales of biscuits, shampoo, tea and toothpaste declined.
Concurrently, demand for work under the National Rural Employment Guarantee Scheme has spiked. In February 2023 it touched an eight month high, in a sign that rural distress persists. This rise in demand for MGNREGS work signals that economic activities, especially in the industrial sector, are yet to witness a strong and durable recovery.
Let us now look at consumer food price inflation in relation to real wages.
Chart 2: Food Price Inflation vs Real Wages
Source: Food price inflation data from MOSPI; Rural wage rate data from Labour bureau
The growth in real wages has been trailing food price inflation since November 2021. The difference between the two widened to as much as 1574 basis points, or 15.74 percentage points, in February 2022. The average for the 13-month period from November 2021 to November 2022 was 998 basis points. In other words, real wages trailed food inflation by 9.9 percentage points for a year, before turning positive. A dip in the inflation rate helped to claw back some purchasing power for rural Indians. The wage data for December 2022 onwards has not been uploaded, hence it is not possible at this point to comment on the movement of nominal or real wages over the past three months.
The increase in the inflation rate in January 2023 has been driven by a 17.19 percent rise in cereal costs, egg and milk prices that rose by over 8 percent and energy prices that increased by 10.5 percent from a year ago. The figures are from the CPI (Rural) component of the government’s CPI data. The greatest source of uncertainty now is the impact of higher than normal temperatures on wheat and other rabi (winter) crops due for harvesting in March-end.
A note on methodology
The information on inflation and wages was taken from publicly available government data. Inflation numbers was sourced from the Ministry of Statistics and Programme Implementation (MOSPI) and the Press Information Bureau website while the wage rate data was taken from the Labour Bureau website.
India’s main inflation gauge is the Consumer Price Index, which is made up of an urban and a rural component. The CPI (Rural) index was used in this study. The rural wage rate data has two components: agricultural and non-agricultural wages. Each of these was had two further sub-component wage rates for men and women. Taking the average figure gave the month-wise agricultural and non-agricultural nominal wage rate. The year-on-year increase in the nominal wage rate subtracted from the year-on-year increase in inflation gave the real wage rate and a time series was built.
Food Price Index, World Food Organization. Click here to read
Consumer Price Inflation data, Ministry of Statistics and Programme Implementation, Please click here for the data
Rural wage data, labour statistics, Ministry of Labour and Employment, Please click here for the data
Page 173, The trend in rural wages, Economic Survey 2022-23, authored by the Chief Economic Adviser and tabled in Parliament in January 2023 by the Ministry of Finance. Click here to read the survey
Effective Inflation for Bottom 50% of the Indian Population 40bp Higher Than Retail Inflation by India Ratings & Research, released in February 2023. Click here to read the report
Stress in Villages, but Growth in Cities, says Hindustan Unilever CEO, Please click here to read the report
Rural Demand for FMCG Dips 17% as Consumption Slows, Please click here to read more
FMCG Growth Slows in Oct-Dec Quarter, Please click here to read more
Demand for Work Under NREGA Touches an 8-month High, Please click here to read more
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