By Sunil Kumar Sinha & Devendra Kumar Pant

The share of agriculture in the economy is now about 18%, down from 53% in FY51. Yet, its importance in terms of generating employment and consumption demand has not diminished proportionately, given many non-agricultural activities in rural areas have strong linkages with agriculture. Although rural demand can’t substitute urban demand, it can still extend support, as seen in the first Covid wave.

The second wave, however, was somewhat different. Notwithstanding large-scale reverse labour migration, the first wave was largely an urban phenomenon; but the second wave impacted the rural areas as well. So, even as agricultural output/income remained broadly intact due to near normal monsoon in 2021, the expenditure pattern of the rural households was different this time, with increased health expenditure restricting other expenditure. Another factor during the second wave was the decline in non-agricultural activities. As these activities—carpentry, blacksmithing, vehicle/tractor/cycle repair, retail, construction, transport, etc—are contact-intensive, the second wave adversely impacted them. Non-agricultural income now constitutes nearly two-thirds of the rural income.

Although rural wages have been under pressure over the last few years, especially over FY16-FY20, the pressure worsened post Covid. The largest chunk of rural population consists of daily wage earners, not farmers. Rural wage growth—farm and non-farm—has declined lately. Average nominal agricultural wage growth in April-November 2021 declined to 2.3% from 6.6% in April-November 2020 (5.8% in April-November 2019). Similarly, non-farm wage growth in April-November 2021 declined to 1.8% from 7.9% in April-November 2020.

For a major agricultural occupation like sowing, the nominal wage growth was as high as 30.7% in FY13 but dropped to 5.6% during FY16-FY20 and declined further to 4% in FY22. The nominal wage growth rates for animal husbandry workers were also consistently strong (20.4-34.8%) till FY15, but dropped to an average of 6.1% during FY16-FY20 and to 3% in FY22.

In real terms, wages declined sharply across all agricultural operations in FY16-FY20 as compared to FY12-FY15. The worst-hit among the agricultural operations were ploughing/tilling and harvesting/winnowing/threshing where real wage growth averaged 0.6% and 0.4%, respectively, in FY16-FY20. Harvesting/winnowing/threshing and picking activities witnessed negative real wage growth in FY20, but turned positive in FY21. However, this was short-lived and real wage again turned negative in FY22. In fact, the real wages of all agricultural operations have turned negative in FY22, unprecedented in the recent past.   

The fate of non-agricultural wage growth is no different. Both in nominal and real terms, it witnessed a significant decline during FY16-FY20 as compared to FY12-FY15. In FY22, it appears to have simply collapsed. For the occupation of carpenter, the real wage growth averaged 0.9% during FY16-FY20 as compared to 7.4% during FY12-FY15. In FY22, it has turned negative. More importantly, the real wage growth of all non-agricultural activities in FY22 is negative. In August 2016, the government had raised the minimum wage for non-agricultural labourers by 42%. Yet, the rural wage for both farm and non-farm activities failing to even keep pace with inflation illustrates the dire state of the rural wage earners.

Under MGNREGA, 2.97 billion-person days of employment have been generated in FY22 (till January 28, 2022). The total number of households that got employment till January 28, 2020, is 67.1 million and the total number of households that completed 100 days of employment is 3.0 million. However, the average wage rate per day per person, at Rs 209.31, in FY22 is only marginally higher than Rs 200.71 in FY21. It is significantly lower than the prevailing average agricultural wage of Rs 317 and non-agricultural wage of Rs 401. This suggests that seeking employment under MGNREGA is either a supplementary activity or the last option for rural wage earners. 

While rural wages are under stress, there is a rise in the share of labour force employed in agriculture, despite the policy objective of moving labour force out of agriculture into manufacturing. NSO’s Periodic Labour Force Survey for 2019-20 shows that the share of workers employed in the agricultural sector has risen to 45.6% in 2019-20, from 42.5% in 2018-19, and simultaneously the share of workers employed in manufacturing and construction declined to 11.2% and 11.6%, respectively, in 2019-20 from 12.1% each in 2018-19. These numbers are for pre-Covid period. Post Covid, reverse migration is expected to have only accentuated this process. This points towards a disturbing trend and requires careful policy intervention.

The writers are, respectively, principal economist, and chief economist, India Ratings and Research. Views are personal