India's rural wage growth dip to 18%

Rural wages are alarmingly rising far in excess of the inflation rate, says analyst.

According to Nomura, rural wage growth remains elevated. In Q1 2012, rural wage growth exceeded 18% y-o-y, only marginally lower than the 21% growth in 2011. More importantly, rural wages are rising far in excess of the inflation rate.

Here's more from Nomura:

Until 2007, wages grew in line with CPI inflation. Since then, though, wages have exceeded inflation due to the extension of the rural employment guarantee scheme (aka MGNREGA) to all rural districts, which has pushed up the opportunity cost of labour.

Rising support prices for food crops, high food inflation and linking of MGNREGA wages to CPI inflation also played a role.

Real rural wage growth of around 10% y-o-y in Q1 2012 is marginally lower than the 12% average in 2011. However, real wage growth remains high, which suggests that a key driver for rural consumption demand is still in place.