Back to the farm

Wage growth in agriculture outpacing that in industry is a bad sign for the economy

Against a 63 per cent rise in industrial wages in a 10-year period, agricultural wages in the harvesting season have risen by 117 per cent, according to data released by the agriculture ministry this week. The difference in the rise in wages in the two sectors, from comparable bases, is not a statistical artefact. Starting as a third of the industrial wage, agricultural wage has climbed to nearly half of the daily industrial wage. Factoring in the impact of higher living costs in towns where industrial work is concentrated and the cost of migration from rural areas, there is obviously a perverse incentive developing for the workforce to remain in the villages. This is also borne out by the census data for the same decade that shows migration from rural areas to cities has decelerated.

Clearly, then, along with having to adjust to costly capital due to higher than average global interest rates, the industrial sector has begun to lose out on the advantage of easier labour supply. Wages for agricultural workers were pathetically low at the beginning of the decade. That needed to be corrected, but since the rise in productivity in the farms has not been commensurate, the rise in wages is more of a transfer from the state to rural India. At the same time, RBI analysis of factor productivity in the manufacturing sector, which accounts for most of the industrial workers, shows wages and rise in productivity have been largely in sync. Even providing for caveats — for instance, that the data sets released by the government are averages across states and bury inter-state variation — the conclusion holds. Also, since agricultural work is by nature more uniform than industrial work, the difference in wages for farm workers against low-skilled workers in the industrial sector is even lower, strengthening the case against migration.

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