Weighted Down By Wages

The Indian Express     28th August 2020     Save    
QEP Pocket Notes

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.
QEP Pocket Notes