This post relates to an article in Economic Times on 7th July by Swaminathan Aiyar "Agricultural wages have skyrocketed; poors have benefited from GDP growth". The article tries to locate the reason for a sudden rise in agricultural wages in India and finally settles at labor shortage due to withdrawal of laborers from the workforce as shown by fall in workforce participation ratio from 42% in 2004-05 to 39.2% in 2009-10 as revealed in latest round of NSSO survey, also reduced labor migration from Bihar and Orissa is a reason.
Between January 2008 and December 2010, agricultural wages skyrocketed 106.3% in AP, 84.1% in Punjab, 73.6% in Tamil Nadu and 62.9% in Maharashtra. In poor states, wages rose 62.8% in Orissa, 62.3% in UP, 58.5% in Bihar, and 56.3% in MP. Even after providing for a 33% inflation in the period the rise is substantially high.
However, the reasoning behind wage rise misses one marked feature of India's rural economy. The wage rise was maximum in the harvest season of Rabi crops in 2009-10. In most of Indian states wages for harvesting are paid in kind and not in cash. So, wages in cash of most of the crops barring few cash crops are automatically linked to food inflation. Thus, with food inflation reigning higher than headline inflation wages were bound to rise in the period. The states where wages have not rose significantly are the ones with most monetized economy like Gujarat and Karnataka and may be agricultural wages for harvest there is paid in cash. This is one reasoning that was missing in the articles on agricultural wage rise.
Thus, rise in agricultural wages have not brought much prosperity to rural India because we are talking of a class that spends maximum portion of its income on food products and with high food inflation in the period it is not surprising that poverty came down only by 5% in five years till 2009-10. This is not inclusive growth.
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