India's wage growth significantly trails economic growth, says the ILO

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  • According to the International Labour Organisation’s India Wage Report, the average annual wage growth from 1993-94 to 2011-12 was 3.7%, while GDP grew at a yearly rate of 7%.
  • By 2011-12, the overall daily wage in India was around ₹247, while casual workers, estimated to total 62% of the total workforce, only earned ₹143 a day.
  • It does bear mentioning, however, that the gender wage gap has decreased from 48% in 1993-94 to 34% in 2011-12.
When India opened up its economy in 1991, the goal of the policy was clear: to accelerate economic growth. Two decades, later, it seems that India’s financial liberalisation - which comprised a surge in foreign investment, a reduction in tariffs and deregulation- has had its intended effect on India’s GDP and then some.

However, a recent report by the International Labour Organisation shows that this growth hasn’t been inclusive, indicated by the fact that wage growth in India has significantly trailed economic growth from 1993-94 to 2011-12. Over the period in question, the average annual growth in wages was a mere 3.7% compared to the 7% average yearly growth in India’s GDP. On a cumulative basis, India’s GDP grew by four times in the last two decades, while real wages only doubled. Interestingly, most of the increase in wages came in the last 8 years.

This sluggish wage growth has contributed to a rise in inequality and exacerbated the economic divide between rural and urban areas. The daily wage in urban centres in India is still double that of rural areas, indicating a lack of good-quality jobs in rural regions of the country.

By 2011-12, the overall daily wage in India was around ₹247, while casual workers, estimated to total 62% of the total workforce, only earned ₹143 a day. Additionally, nearly half of India’s workforce is estimated to be employed in the agricultural sector, a sector that has consistently trailed others in terms of output growth and productivity.

The report did show a few positive changes. Rural wages increased at a faster pace than urban wages. Additionally, wages for female workers also increased at a faster pace than wages for male workers. However, this is largely due to the fact that both rural wages and female wages had a low base from which to grow from. It does bear mentioning, however, that the gender wage gap has decreased from 48% in 1993-94 to 34% in 2011-12.

The ILO suggested a number of ways to reduce the level of wage inequality such as the continued revision of minimum wage laws, the improved collection of worker data by government agencies, the formalisation of the informal sector and the implementation of skilling programmes to improve labour flexibility and productivity.
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