The widening disconnect between India’s household situation and a buoyant GDP has been brought to the fore by both the Reserve Bank of India’s data on household assets and liabilities and the annual Periodic Labour Force Survey (PLFS) 2022-23 (July to June).

The latest Monetary Policy Committee review of credit policy too paints a buoyant picture on the growth front, using some high frequency demand indicators such as sale of two-wheelers and passenger vehicles, domestic air traffic, retail credit, and Nielsen survey data (most of which have an urban or leverage bias). This, however, does not square with the scenario emerging from PLFS report.

The PLFS data points to a decline in unemployment rate and gains in labour participation. But what matters eventually is whether they have translated into better earnings for workers.

The following facts stand out from our analysis:

(i) The growth in real average wage/worker in 1QFY24 at 2.9 per cent YoY is in sharp contrast to real private final consumption expenditure (PFCE as per GDP data) growth of 6 per cent in 1QFY24, which decelerated again in 2QFY24 at 3.1 per cent, making a 4-quarter average of 3.5 per cent. This insipid growth as per GDP data is despite the exuberant retail lending growth.

(ii) Average income per worker from regular (21 per cent of workers), casual (22 per cent) and self-employment works (57 per cent), based on PLFS is estimated at ₹13,467 per month in 2022-23. This works out to a 5.9 per cent growth on 4-year CAGR (derived on the basis of various PLFS annual reports), translating into 0 per cent growth in real terms (net of inflation) (See graphs).

A disaggregated picture is even more revealing.

The wage/salary growth of regular wage/salary workers in nominal terms was 7.8 per cent YoY 1QFY24 ( ₹20,039/month) and a 4-quarter average of 6 per cent YoY or almost nil in real terms. The rise in annual regular wage/salary in 1QFY24 was significantly skewed in favour of managers (18.1 per cent YoY), who account for just 4 per cent of the sampled regular workers.

Narrow band

Conversely, the rise for the remaining 96 per cent stood at 3 per cent in nominal terms. Clearly, the revival in the momentum of formal sector jobs has been restricted to certain segments in the urban areas and higher-level posts.

Growth in daily casual wages (in rupees per day) at 6 per cent (urban+rural, CAGR 2QFY22-1QFY24 or seven quarters) was 4.8 per cent in nominal terms. Also, a fall in the number of days worked, given the uneven activity across sectors, would have led to a dip in income growth.

In fact, the employment status between (1) regular employment, (2) casual employment and (3) self-employment shows a 1.5 percentage point increased proportion of self-employment (57.3 per cent) which is arguably the residual impact of a contraction in regular and casual work particularly in the manufacturing, urban construction, and services sectors along with a substantial decline in casual work in agriculture.

So, while the improvement in WPR, representing the employment rate, may look positive, these additions are coming from self-employment in rural areas, mainly in agriculture. Casual and regular work earners appear to be in decline. The 4-year CAGR (four quarter averages taken as annual growth, till Q1FY24) for income from self-employed work, in nominal terms, stood at 5.8 per cent (₹13,347/month), with females at 3.5 per cent and males at 7.8 per cent. Given that a significant portion of the reported income for self-employed is imputed values, the actual cash income is much lower.

Rise in self-employed

The significance of incomes from self-employed work emanates from the fact that its share in overall employment has been rising. If contractions in regular employment and casual work continue, the dependence of India’s labour force on rural self-employment could rise further, causing a decline in the average real income.

This would impact investment in child education, spending on medical, and decline in household financial savings, thereby impairing labour productivity and earning capability in the long term.

Year 2022-23 has seen a sharp decline in rural males working in agriculture and services, and a rise in rural construction. Females have moved into agriculture both in rural and urban areas. Work in the overall better-paying urban areas has contracted, while it has expanded in lesser-paying agriculture and rural construction. Despite large government capex and recovery in housing, urban construction jobs have declined in FY23.

PLFS counts the ‘helper in household enterprise’ as employment which do not represent actual cash wages and therefore amounts to disguised unemployment. Therefore, accounting for the rise in this segment, represented by forced self-employment in rural areas (largely unpaid labour), the estimated effective UR would, in fact, appear to have risen sharply in FY23.

We had earlier referred to a 19 per cent decline in household financial savings in FY23 (businessline, October5), based on the Reserve Bank of India’s data release. Real per capita income growth had slowed down to its slowest level in decades.

Despite 2QFY24 real GDP print up 7.6 per cent, employment-intensive agriculture and services sectors contributing 72 per cent of GVA have seen a deceleration. These could suggest some weakness in employment, income, and labour productivity, rather than a robust demand situation.

Sinha is Co Head of Equities & Head of Research - Strategy & Economics; Mundhra is Economist, Systematix Group

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