New Delhi: Ratings agency India Ratings and Research (Ind-Ra) has estimated that real wages — after accounting for inflation — will grow around 6.5 percent in the current financial year, up from the projected 3.5 percent growth in 2023-24.
Employees, however, don’t seem too convinced. The RBI bimonthly survey in May revealed that the share of people who believed their incomes would increase over the year remained flat, while more respondents believed their employment situation may deteriorate.
In other words, there has been no change in the past three months in the number of people who expect an income boost this year, but there’s been a rise in the number who feel their employment situation may worsen.
This goes against what Ind-Ra’s analysis seems to suggest.
“The support to the real wage growth is expected to emanate from a drop in inflation and improved employment conditions in view of an above-normal southwest monsoon rainfall for 2024,” Sunil Kumar Sinha, principal economist at Ind-Ra, said in a note released Tuesday.
Diverging views on what the future will bring
Ind-Ra makes the point that wage growth and consumption growth — an important driver for the economy — are linked.
“Consumers/individuals base their consumption on their medium/long-term average income rather than current income to smoothen their income consumption mix,” it said.
So, if wage growth is perceived as stable, then it can lead to a more sustained increase in consumption, while a perception of unstable wage growth could lead to more muted or volatile consumption levels.
The RBI survey results, released last Friday, showed that 56.9 percent of respondents in May felt their income would go up over the course of the subsequent year — a marginal increase from the 56.7 percent who felt the same when surveyed in March.
On the other hand, the percentage of people who felt their incomes would decrease also increased marginally, from 6.1 percent to 6.2 percent. The balance — 36.9 percent of respondents — felt there would be no change in their incomes.
On the employment situation, respondents were more pessimistic about the future. The share of people who felt their employment situation would improve over the year decreased from 60 percent in March to 58 percent in May — the first such decrease in six months.
The share of people who felt their employment situation would worsen over the year increased to 23.7 percent from 22.6 percent. Notably, those who felt their employment situation would remain the same also increased to 18.3 percent from 17.4 percent.
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Consensus that current situation is bad
While Ind-Ra’s analysis differs from the perception of the public when it comes to future expectations, they agreed on a broad point about the present — things are bad.
“For FY24, Ind-Ra opines that the overall real wage growth in the economy would have been around 3.5 percent which would be the lowest since FY16 (barring FY21),” the ratings agency said. “The latest high frequency data on real wages portray a broader slowdown in real wages at the aggregate level and continuation of divergence in real wage growth of the top and bottom income consumers/individuals.”
The public seems to wholeheartedly agree. The share of people who felt their incomes had increased since last year fell to 25.3 percent in May from 27.7 percent in March. The share of those who thought their incomes actually decreased over the last year went up to 22.4 percent from 21.7 percent.
The overwhelming majority (52.3 percent) felt incomes didn’t change over the last year.
On the current employment situation, 36.8 percent felt things have improved in May, lower than in March (38.1 percent), while 40.2 percent felt the situation is worse than before, up from 38.1 percent.
“The real wage growth in the agricultural sector after reviving somewhat in the first quarter of FY24 has remained stagnant in the subsequent quarters,” Ind-Ra said. “Overall, the real rural wage growth of agricultural activities stood at 0.1 percent in FY24 (till February 2024).”
It added that while the urban minimum real wage growth was above 4 percent in the first half of FY24, it fell to just 0.7 percent in the second half.
(Edited by Tikli Basu)
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