Wages Of Distress

General Studies Paper 3

CONTEXT:

• The latest estimates of Gross Domestic Product (GDP) released by the National Statistical Office (NSO) suggest that the Indian economy grew by 3(six point three)percent in the last quarter compared to last year, with full-year growth expected to be around 7 percent.

Gross Domestic product(GDP):

• GDP is a measure of economic activity in a country.
• It is the total value of a country’s annual output of goods and services.
• It gives the economic output from the consumers’ side.

Real and Nominal GDP:

• Nominal GDP is calculated as per the market prices for the year for which the GDP is calculated.
• Real GDP is calculated as per the market prices in the base year.
• The Real GDP negates the inflation in goods and services.

National accounts data shows:

• Average income in India is lower in 2021-22compared to the pre-pandemic year of 2018-19
• Per-capita income declining at 25(zero point two five)percent per annum.

 Cases:

• Case of farmers(the largest occupational group): Farmers’ income declined by 5(one point five) percent per year between 2016-17 and 2020-21.
• Case of casual workers:(monthly data from the labor bureau): Real wages in non-agricultural occupations between September 2017-2022 declined by 9(zero point nine) percent per annum
• almost stagnant for agricultural occupations with real wages rising by 1(zero point one) percent per year.
• Cultivators and rural wage laborers account for 78 percent of all rural workers
  • Their share in the economy is 53 percent.
• Four-fifths of rural workers have not seen any increase in their incomes in the last five years.

Current Issues:

• Rural households and the poor that have seen a decline in incomes.
• Better-protected regular workers in urban areas have not fared better.
• Employment-Unemployment Surveys of the National Statistical Office (NSO) and the Periodic Labour Force Survey (PLFS): suggest that real earnings of regular workers have declined across categories(male and female, rural and urban).
• Between 2011-12 and 2017-18: earnings of rural regular workers declined by 3(zero point three) percent per annum while it declined at a faster pace of 7(one point seven) percent per annum in urban areas.
• Between 2017-18 and 2020-21: further declines by 7(zero point seven) percent in rural areas and 3(one point three)percent in urban areas.
• In 2020-21:
• average rural regular worker was earning only 96 percent of the salary in 2011-12 in real terms
• Urban; It was only 86 percent in urban areas.
• Together with cultivators and rural casual wage workers(account for 83 percent of all workers in the country).
• All of them have seen their real earnings decline in the last five years.

PLFS data:

• Real earnings of households from all forms of employment declined(between 2018-19 and 2020-21):decline in per capita incomes reported by the national accounts.
• PLFS estimates of earnings from employment: The decline was largely in the urban areas where earnings declined by 2(four point two) percent per annum.
• Rural areas: per capita earnings from employment actually rising by 7(two point seven) percent.
• Consumption expenditure:
• The consumption expenditure of the urban areas declined by 4 percent whereas it increased in rural areas.
• Urban areas: highly educated among the regular workers have seen faster decline in real earnings compared to illiterates and bare literates.

Consumer Confidence Surveys (CCS) of the RBI:

• Urban economy: Shows distress in the urban economy.
• It tracks the economic situation in 13 major urban centers
• It seeks the perception of respondents on the current as well as future economic situation.
• Last five years: the net response to the economic situation has been negative.
• Case with incomes: more respondents reporting a decline in incomes compared to those who report improvement.
• Case of non-essential spending continues to remain negative until the last data.

Annual financial statement (AFS)

• The Constitution of India does not specifically use the word Budget.
• Article 112 provides for laying before Parliament an ‘Annual Financial Statement’ providing a statement of the estimated receipts and expenditure for the upcoming year in relation to estimates for the current year as also actual expenditure for the previous year.
• This statement evidences the receipts and expenditure of the Government in three separate parts under which accounts are maintained i.e. the Consolidated Fund (Article 266), Contingency Fund (Article 267)and Public Account (Article 266).
• AFS distinguishes the expenditure on revenue accounts from the expenditure on other accounts, as mandated in the Constitution of India. It comprises Revenue budget and Capital budget.
• The estimates of receipts and expenditure included in the Annual Financial Statement are for expenditure net of refunds and recoveries

 Way Forward

• The distress in the economy is no longer a rural phenomenon: It is far more widespread with even the better protected and middle classes in urban areas experiencing it due to declining incomes.
• The challenge for the government is not just to protect the poor and vulnerable through increased spending on social protection given the inflationary spell.
• It also needs to raise incomes for the majority of rural and urban population.
• Increasing disposable income among the middle classes is the only way to increase discretionary demand in the economy.
• The budget has the unenviable task of reviving the economy even at the cost of the short-term objective of fiscal management.