MUMBAI: Even though the raging pandemic has disrupted businesses and caused significant income losses, rural nominal wages have been higher during the period, the data shows. According to Nomura, the increase in rural wages during the pandemic is mainly due to supply-side factors.
âAfter the lockdown of the first wave, rural wages initially increased due to the mismatch of supply and demand resulting from the outflow of migrant workers. Even after the closures eased, conditions have not completely normalized, “said Sonal Varma and Aurodeep Nandi, economist, Nomura.
In the fiscal year ended March 2021, the increase in rural wages in the agricultural sector increased by 7.2 percentage points after rising 3.8 percentage points (pp) in fiscal 2020 , while rural non-farm wages increased 5.4 pp against an increase of 3.9 pp in FY20. The rural labor force participation rate, even after the second wave, remained around 41-42%, almost 2 percentage points below the pre-pandemic normal of 44%, indicating constraints labor supply, said Varma and Nandi.
Higher rural wages are generally positive for rural demand, but this time it is unlikely. Growth in real rural wages was on average close to zero in FY21 and, although hiring increased under the government’s rural employment guarantee program, this mainly provides only benefits. living wages. “On the other hand, we see implications on the supply side,” added Varma and Nandi. They believe that higher rural farm wages, along with rising costs of other inputs such as fodder, diesel, and fertilizers, could drive up the costs of agricultural production, leading to higher costs. inflationary pressures.
Meanwhile, India Ratings said that even if agricultural production and income remain intact, there is a high likelihood that the spending pattern of rural households will be reduced.
The rating agency believes rural demand may remain weak due to the negative impact of the second wave of covid. “While demand for agricultural credit and agricultural inputs such as fertilizers and pesticides may remain strong for a third consecutive year of near-normal monsoon, demand for FMCG products, especially automobiles, tractors and two-wheeler is expected to suffer, âthe rating agency said. mentionned.
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