“I am seething with anger”: A decade of stagnation in rural wages

Economic liberalisation in 1991, the economic boom in the 2000s, the making of Gurugram into a technology and financial hub--Singh has witnessed India’s economic transformation for more than three decades. But unlike the tens of millions of workers who left rural India to migrate to its growing cities in search of better economic opportunities, Singh never left Nunera.

Instead, he waited for years for the 'Kuznets inverted U-curve' to take effect. In the 1950s, American economist Simon Kuznets proposed a now-famous hypothesis according to which, as the size of an economy grows and it transforms from an agrarian to an industrial economy, income inequality first rises and then falls.

In April 2024, Ashima Goyal, a member of the Reserve Bank of India’s Monetary Policy Committee, told the Press Trust of India (PTI) that inequality has risen in India but “the famous 'Kuznets inverted U-curve' tells us that this is normal in a period of high growth and should come down over time”.

Nunera is only about 45 km from Gurugram, but over the years economic change has been minimal except for a finely paved two-lane road that cuts through the village, and the dozens of farmhouses that real estate builders have propped up as weekend getaways for the city-rich.

One afternoon, as warm winds lifted and blew sand, Singh was working a pool of concrete mixture to build dozens of five-foot pillars at a construction site, where he had showed up at 6 a.m. He would work late into the night. “For Rs 500,” Singh said, noting that during good months, he gets work for 12-15 days.

On most days, he wonders about dehadi--daily wage rate--like people wonder about the weather before leaving the house. “There is only work in the farms or at small construction sites,” Singh said. “In the farms we get Rs 300-350 per day. Here it is Rs 500. In the last four years, wages have barely increased by Rs 30-40. I have stopped asking for higher wages. Nobody here will pay more. If I won't work, then somebody else will.”

Singh had held hope that things would become better in Nunera for his family of four--a hope founded on the economic transformation of Gurugram, the evidence for which was visible to him in the expensive sedans driving past the village, in the tales of wealth and prosperity that he had heard from returning migrant workers.

All he wanted, he said, was higher wages, but that hope has now morphed into disillusionment. Today, high inflation and his wife’s health expenses have dented his financial position, and he is in debt of Rs 25,000.

“I am seething with anger,” he said. After a long silence, Singh suddenly enquired about the time of the day. It was 11.15 a.m. “I get hungry by 11 a.m. but I am still working,” he said, as he drummed his fingers on his stomach.

Growth, but for whom?

In the last three months of 2023, gross domestic product increased by 8.4% with India retaining the crown for the fastest growing major economy. And its stock market has outperformed most Asian peers. There are knock-on effects: last year, Bloomberg reported that India has emerged as a “new luxury spending hotspot.”

However, there has emerged a cavernous gap between the performance of its financial market and formal economy and the more than 170 million households in the country’s rural areas, where about 65% of the population lives.

For the last 10 years, real rural wage growth--which economist Jean Drèze has called one of the most important and neglected macroeconomic indicators in India today--has remained stagnant. Real wages are incomes after adjusting for the effect of inflation. And if real incomes do not grow, people do not possess the purchasing power to buy more goods and services, thereby affecting both demand and general wellbeing of people in an economy.

According to an analysis of government data by the Indian Council for Research on International Economic Relations (ICRIER), an economic think-tank, during the Narendra Modi government’s first term, growth in real rural wages for farm and non-farm sectors declined to 3% and 3.3% respectively from about 8.6% and 6% between 2009-10 and 2013-14. However, during the Modi government’s second term, the situation worsened as growth turned negative: -0.6% for farm wages and -1.4% for non-farm wages.

“There has been little research on the recent stagnation of wages, because few people paid attention to this until last year,” Drèze, visiting professor at the Department of Economics at Ranchi University, told IndiaSpend. “India has had a problem of sluggish growth of rural wages for a long time--most of the last 35 years. But today, this stagnation is happening in spite of fairly rapid economic growth.

“One reason for this long-standing tendency is that India has a huge reserve army of workers who have poor educational qualifications and lack marketable skills, even if they have plenty of other skills. This holds wages down.”

Plans versus reality

On May 8, Reuters reported that Prime Minister Modi has drawn up plans to increase rural per capita income by 50% by 2030, even as he is contending for a third term in India’s ongoing general elections.

To increase non-farm jobs in rural India, Modi is planning to boost investments in small scale industries, according to Reuters. Previously, on February 28, 2016, while addressing a large gathering of farmers in Bareilly in Uttar Pradesh, Modi declared that he would double farmers’ incomes by 2022, when the country would celebrate its 75th year of Independence. The crowd cheered.

However, government data found that even as average monthly incomes for a household of five people increased from Rs 6,426 in 2012-13 to about Rs 10,200 in 2018-19, agricultural households remain under considerable financial distress, with about 50% in debt and the average outstanding loan rising 59%, as IndiaSpend reported in September 2021.

About 82 million households--comprising 410 million people--cultivated crops on land of size less than or equal to 2 hectares, according to government data. In this cohort, which forms 88% of all agricultural households in the country, about 38.7 million households are in debt with average outstanding loan amounts of Rs 33,220, Rs 51,933, and Rs 94,498 for farmers with landholdings between 0.01-0.40 hectare, 0.41-1.00 hectare and 1.01-2.00 hectare respectively.

Economists say that India’s rural economy is a function of how well the agricultural sector performs, with rising farm incomes leading to a knock-on effect on rural consumption, farm and non-farm wages, and even wages in sectors such as manufacturing and construction.

Drèze refers to the years between 2007 and 2013 as an anomaly in the long trend in rural wages. “[Rural wages] were growing at about 5-6% per year in real terms. This was unprecedented for India. Quite likely, this spurt had something to do with the tightening of labour markets that followed the deployment of the National Rural Employment Guarantee Act. Now, we are back to the old pattern of near stagnation of real wages, in a more severe form because it went on for 10 years even as the economy grew at a fast rate,” Dreze said.

Himanshu, an associate professor of economics at Jawaharlal Nehru University in New Delhi who goes by just the one name, told IndiaSpend that there were a variety of factors that propelled rural wages between 2007 and 2013, when the United Progressive Alliance was in power. Apart from the implementation of the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), agricultural productivity, higher minimum support prices (MSPs) for crops, construction sector growth and urbanisation pushed rural wages high.

However today, according to Himanshu, none of these factors are working. “Whichever way you look at it, growth [in real rural wages] has slowed down. There is a palpable distress that is visible in the rural areas. Companies have noted that there is hardly any volume growth for their products. More than anything, it is a case of demand slump in the last 10 years when compared to the previous period.

“The demand from non-farm sectors such as manufacturing and construction has also slowed down and people are moving back to agriculture. Agricultural prices--in terms of MSPs--have not moved as fast as non-agricultural prices. Terms of trade have shifted against agriculture. And this has driven wages down,” Himanshu said, noting that even as the construction sector is rife with investments, there is hardly any positive movement in rural wages.

In 2021, Modi said that India would invest about $1.4 trillion--or about Rs 100 trillion--to build ports, roads, waterways and economic zones, which would also create millions of jobs. Knight Frank, a real estate consultancy, in a report in 2023 said that India’s booming housing market in its top eight cities would propel the construction sector to contribute about one-fifth to the economy by 2030, thereby employing 100 million workers, about 80% of them semi-skilled.

Between May 2019 and May 2024, the Nifty Realty index--a benchmark index for the real estate sector, comprising of 10 stocks from the National Stock Exchange--went up by more than 280%. In contrast, the average daily real rural wages of construction sector workers between 2018 and 2023 increased from Rs 182.44 to Rs 205.80 for male workers and from Rs 136.95 to Rs 157.95 for female workers. Between 2021-22 and 2022-23 the growth of real wages for the same cohort registered negative growth of -0.1% and -3% respectively, according to an analysis of data published by the Labour Bureau by Arindam Das and Yoshifumi Usami.

“The first thing a rural person does when their incomes go up is to convert their kaccha houses to pucca houses, which is what happened between 2007 and 2012,” Himanshu said. “There was a multiplier effect. And it was reflected in demand for construction labour. Where workers in construction are employed is not in major infrastructure projects, because the labour intensity of these projects is low. The contribution to GDP growth from infrastructure investments that we are [currently] seeing is very capital-intensive rather than being labour-intensive.”

Pronab Sen, economist and former chief statistician of India, told IndiaSpend that labour-intensive projects such as rural housing and road construction positively affect rural wages owing to higher labour intensity.

“In rural India, agriculture is no longer the driver of economic activities. And alternative occupations are simply not growing fast enough,” Sen said. “So you have a surplus of labour.”

Demonetisation and other systemic shocks

Economists look at a variety of proxies, such as two-wheeler sales, to gauge the performance of the rural economy. In fiscal year 2018, about 20.2 million two-wheelers were sold, which declined to 15.8 million in the fiscal year 2023. At the same time, sport-utility vehicles (SUVs) made up more than half of India's record 4 million car sales in fiscal year 2023, Reuters reported.

Jayati Ghosh, a professor of economics at the University of Massachusetts, Amherst, said that economic shocks such as demonetisation and the Covid-19 pandemic badly affected India’s huge informal sector and the millions of workers who work in it.

“All of this impacted real wages,” Ghosh told IndiaSpend. “When real wages are down, real consumption is down. And we saw this in the [now] junked household consumption survey of 2017-18. Rural consumption was lower than it was in 2011-12--which is incredible, if you think about it. This represents the vicious cycle that the economy is now in. Stagnating wages mean low demand, which means that small enterprises who employ the bulk of the workforce do not get demand for their products. And this translates into low wages.

“Even for urban real wages, the average is going up but the median is not. Which means that half of the workers are not getting better wages even in urban areas,” Ghosh said.

Himanshu and Ghosh both argue that India’s high GDP growth is not reflected in the state of the rural economy, and the effect of this would be a hit to domestic demand as time wears on. “India is an economy which is driven by demand,” Himanshu said. “We are not an export-driven economy such as China or Vietnam. So if domestic demand is not picking up, then you are likely to have problems. For instance, take the issues with inventory build-up in the automobile sector. One of the reasons for sluggish private investment is lack of domestic demand: If companies are not able to sell, then they are not willing to invest.”

According to Drèze, this is beginning to show. "The growth of average consumer expenditure has been quite low in the last 10 years or so,” Dreze pointed out. “According to the latest data released by the National Sample Survey Office, consumer expenditure grew by just 2-3% in real terms between 2011-12 and 2022-23, compared with 5-6% between 2004-05 and 2011-12. This also suggests that official estimates of GDP growth in recent years may be exaggerated.”

Welfare spending a mirage?

After coming to power in 2014, Modi’s government prioritised expanding spending on welfare and, according to the government, it has spent about $400 billion in the 10 years on welfare provisions such as toilets, cooking gas, free food grains, piped water, electricity and a variety of cash transfer schemes, a trend that former chief economic advisor Arvind Subramanian has called ‘New Welfarism’-- a unique approach toward welfare where provision of essential goods take precedence over provision of public services such as health and education. Surveys have found a correlation between welfare spending and voting preference.

Drèze contradicts this claim. “There was a substitution from [schemes such as MGNREGA and old age pension scheme] to other schemes, focused for instance on house amenities. During the Covid-19 crisis, some of the social security schemes had to be revamped again in a big way, but this did not last long. Overall, central expenditure on welfare schemes is much the same today as it was 10 years ago, as a proportion of GDP,” Drèze said, noting that MGNREGA wages have held constant in real terms for 15 years--from 2009 onwards, wages were raised every year only in line with the price level. “This is a very long time.”

“I do not think that there is a New Welfarism,” Ghosh said. “[Consider] free food grains, for instance. Earlier, the poor were getting it at Rs 2 per kg. Now the government is providing 5 kg of grains for free but the price of the rest of [food items] has gone up. There is not much change in their net purchase. Frankly the difference between zero and two rupees is not that much.”

Ghosh refers to a statistic in the latest household consumption survey released by the government: The difference between average monthly per capita expenditure before and after government welfare transfers for rural India is only Rs 87. “The difference is marginal,” Ghosh points out. “I don't agree that there is a huge increase in welfare spending. This is indicative of the fact that the welfare schemes are not that big on expenditure.”

According to an analysis by the Financial Times, between 2014 and 2022, India’s GDP grew at an average of 5.6% in compound annual growth rate terms while an average of 14 other large developing economies grew by 3.8% over the same period. Factoring in global economic historical trends, Drèze and Ghosh found it difficult to find a similar trend globally, where on a line graph economic growth and rural wages moved in opposite directions.

Drèze said that it would be a surprise if there were another example of a country growing so fast for 10 years with hardly any increase in real rural wages. “This is very, very rare,” Ghosh said.

Sushma, a farm worker in Chuharpur, in Haryana, who goes by one name, has been questioning this trend too, even if she cannot do so in macroeconomic jargon. Briskly walking through a large field of bottle gourd plants, picking and collecting the harvest in a basket perched on her head, she lamented the Rs 250 that she has been receiving for the last four years in return for about eight hours of work.

“Milk, vegetables, cooking oil, atta [flour], bijli [electricity]. All the prices have gone up,” she told IndiaSpend. In March 2024, vegetable inflation in India was at 28.3%; in February, it was 30.2%. Since November 2023, food inflation--including cereals, vegetables, spices, cooking oil, milk, eggs, meat--has been increasing by more than 8%.

“We don’t want to work so hard only to feed our families,” Sushma said, as she lobbed bottle gourds from the basket onto the floor of a makeshift storage room at the edge of the field.

“I want to save money for my two children’s future. I don’t know what to do. I can only pray that our situation will become better. I can’t leave my children behind to work in a big city.”

We welcome feedback. Please write to respond@indiaspend.org. We reserve the right to edit responses for language and grammar.