Weighted Down By Wages

Context:  Labour-led supply disruption has stopped, but low pay may keep demand subdued.

Reasons Leading to Wage Problem 

• Rising reverse migration: has increased demand in rural areas where wages are 40% of those in urban areas. 

• Despite the employment rate rising, wage growth declined in rural India during demonetisation.  
• MNREGA demand is outpacing its supply, which means that it may not be an effective driver of higher rural wages.

• Supply-side disruption from reverse migration may not linger long after the current agricultural sowing season is over.

• Pandemic-led labour market weakness, driven by job losses and falling wages. 
• It could be led by a lack of urban job opportunities.
• Rising Indebtedness: Increase in borrowing, and the sustained fall in inflation has increased the “real” indebtedness of rural landowners who pay villagers to farm their land. 
• Pandemic induced economic crisis might translate into lower rural and urban wages.
• Financial Sector Issues:
• The banking sector, burdened by rising bad loans, will be the key driver of a fall in potential economic growth and wages.
• The construction sector is dependent on funding from Non- Banking Financial Companies (NBFCs), which are also in deteriorated conditions due to the rise in bad loans.

Way Forward

• Tackle the issue of weak wages and subdued demand amid fall in labour-supply disruption rate.
• Accelerate saving led investment growth to increase the job-creating capacity of the economy.
• Ensure optimal and efficient allocation and reallocation of capital: taking capital away from sectors that are not working and redeploying it in working sectors.
• Improve the Insolvency and Bankruptcy Code procedure 
• Improve the health of banks as they are the ones allocating capital by giving loans. 
• Implement 5-Rs — recognition, restructuring, resolution, recapitalisation and reforms for solving the problem of NPAs.