Rising Farm Wages in India—The ‘Pull’ and ‘Push’ Factors
Authors: Gulati Ashok , Jain Surbhi , Satija Nidhi 
Published: August 2014

During the Eleventh Five year Plan (2007–2012), nominal farm wages in India increased by 17.5 per cent per annum (p.a), and real farm wages by 6.8 per cent p.a., registering the fastest growth since economic reforms began in 1991. Farming being labour intensive, this rapid increase in farm wages has raised cost of production of agri-commodities across the board. The farmers hold Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) scheme, started in 2006, responsible for this strong ‘push’ in farm wages and overall scarcity of farm labour. But farm labour is generally at the bottom of economic pyramid. Rising farm wages should be good news for poverty watchers, as it must have led to faster reduction of poverty than in any other Plan since 1991.

These two, somewhat contrary feelings by the farming community and the policy makers, prompted us to look into what is happening to farm wages in India since 1990–1991. The special focus is on what factors could be really influencing farm wages and what can be done to contain rising labour costs in agriculture with a view to moderate the ‘cost push’ factor in food prices. It is interesting to note that the real farm wages increased by 3.7 per cent p.a. during 1990s compared to only 2.1 per cent p.a. during 2000s. So, if real wages had followed the same trend of 1990s in 2000s, the current level of real farm wages would have been higher than what it is today with MGNREGA. However, during the 2000s, there is a sort of v-shape behaviour in real farm wages, declining by 1.8 per cent p.a. during 2000–2001 to 2006–2007, and then rapidly rising by 6.8 per cent p.a. during 2007–2008 to 2011–2012, and it is this later half that seems to be the result of MGNREGA ‘push’ as well as strong growth ‘pull’.

This article captures the growth ‘pull’ factors through growth of overall GDP, or of construction-GDP or agri-GDP, while MGNREGA’s ‘push’ factor is measured by the employment generated under the MGNREGA scheme. The econometric analysis is undertaken through a panel data set of 16 major states (by pooling) for the period 1990–1991 through 2011–2012. Analysis is also undertaken for each of these 16 states separately through time series analysis for different time periods. The empirical results are interesting: that the growth ‘pull’ factors seem to have influenced more the rise in farm wages since 1990–1991 than the ‘push’ factor of MGNREGA. At all India level, the results reveal that a 10per cent increase in lagged GSDP (overall), GSDP (agri) and GSDP (construction) leads to 2.4, 2.1 and 2.8 per cent increase in farm wage rates, respectively. This indicates that the growth in construction sector GDP has somewhat stronger influence on farm wages than the growth of overall GDP or even agri-GDP. Impact of MGNREGA is also significant but is 4 to 6 times less effective than growth variables since 1990–1991. Disaggregated analysis for each state shows that growth variables are highly significant in all the states while MGNREGA is significant in Andhra Pradesh, Assam, Madhya Pradesh, Punjab, Rajasthan, Tamil Nadu and West Bengal. But again, the relative impact is much less. Overall, the results suggest that the ‘pull strategy’ works better than the ‘push strategy’ to raise farm wages over longer term.