A cut in interest rates is alone not going to address this. There are no quick fixes. This requires tackling the long-standing ails of the economy.
Dec 13, 2024 07:25 IST First published on: Dec 13, 2024 at 07:25 IST
On several occasions in recent months, the government has flagged the challenges facing the economy. In its August and September monthly reviews, the finance ministry described the slowdown in urban demand and pointed to the signs of stress building up in certain sectors in the economy. After the release of the second quarter GDP growth data — this showed that the slowdown was deeper than many had expected — a report in this paper had revealed that the government had not only questioned the RBI’s optimistic growth projections, but also its assessment of the underlying price pressure in the economy, and as a result the Bank’s monetary policy. Another report in this paper has now revealed that the sluggish wage growth in the formal sector, one of the reasons for subdued household demand, has also come up in discussions within the government.
As reported in this paper, a study by FICCI and Quess Corp Ltd shows that the wage growth rate across six key sectors in the economy — IT, retail, logistics, FMCG, banking and financial services, and engineering, manufacturing, process and infrastructure — has been the low single digits over the past several years. When adjusted for inflation, real wage growth was either negligible or negative. Weak income growth, along with inadequate employment generation, and inflation have led to subdued household consumption. This report has sparked concern within the government. Chief Economic Advisor, V Anantha Nageswaran, has referred to this report on a few occasions at corporate meets. There is also concern over the share of national income accruing to labour, and within labour to the less skilled. However, concerns over subdued wages aren’t limited to these sectors. As per a report in this paper, during the five years ending in 2023-24, real wages were -0.4 per cent in rural areas, and 0.2 per cent in agriculture. And in the first five months of this year, overall real wage growth in rural areas was 0.5 per cent, and 0.7 per cent in agriculture. In 2023-24, 46 per cent of workers were engaged in the farm sector, while 79 per cent of those engaged in the non-farm sector were employed in informal sector enterprises.
The concern shouldn’t be just about wages in select sectors. Despite relatively steady growth over the decades, the Indian economy has been unable to generate more productive, more remunerative employment opportunities for the millions entering the labour force each year — the labour force participation rate (ages 15 years and above) has risen from 49.8 per cent in 2017-18 to 60.1 per cent in 2023-24 as per the periodic labour force survey. The growing capital intensity of production has compounded the problem. A cut in interest rates is alone not going to address this. There are no quick fixes. This requires tackling the long-standing ails of the economy.
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