Recently Economic Advisory Council has found that demonetisation has contributed to rising rural wages.
However the ground reality shows a different scenario.
What is the government’s claim on rural wages?
The claim is based on analysis of rural wage data for two categories of workers, ploughmen and carpenters.
The government claims the real wages of ploughmen -GAL (General Agricultural labours)and carpenter - NAL (Non-Agricultural labours) has been increased since May 2014.
To prove the claim government has shown the rise in carpenter wages as representative of non-agricultural wages.
What is the real scenario of rural wages?
Most wages started rising in July 2016 since it was the first good agricultural year after the back-to-back droughts of 2014 and 2015.
But the real wages had declined for all occupations except for plantation workers compared to their level in May 2014.
Real wages for all occupation groups, except harvesting, have declined in July 2017 compared to May 2014, re-confirming the slowdown of the economy post demonetisation.
Does demonetisation really contributed to wage raise?
With demonetisation, most landlords would have preferred to dispose their cash by paying wages at higher rates than depositing the money in banks.
There was also an increased spending by the government in rural areas after demonetisation, once it was clear that demonetisation has disrupted the rural economy.
It was clearly evident that spending has been increased on the Mahatma Gandhi Rural Employment Guarantee Act (MGNREGA) which continued until March 2017.
Precisely because of this, wages start declining as soon as the stimulus is withdrawn.
What are the concerns with the government’s claim?
Demonetisation caused a decline in rural demand and contributed to a fall in agricultural prices following the good harvest in 2016.
Government fails to highlight the wages of GAL who are being the representatives of rural economy.
It ignores to accept the sharp drop in inflation which contributed to the real wage growth.
