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 areaswhere 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.