India’s Labour Markets – Urban Rural Demand Divergent Trends

06 Dec 2022

Citi analysts reviewed India’s wages and employment data for 2QFY23 revealing divergence between the two datasets. Wage cost growth for listed companies in 2QFY23 continued to suggest favorable urban demand dynamics while real wage growth remained in negative territory. Comparatively, employment data showed signs of improvement in rural areas although at a slower pace.

Key Trends:

• 1. Wage cost of listed companies -

  As per Citi analysts, Growth in total wage cost of listed companies increased to ~14%YY in 2QFY23 (Sep-22) from 12.8% in 1QFY23 suggesting a strong sequential pickup, albeit aggregate trends masked sectoral divergence. The QoQ growth was weaker than the general Q2FY23 trend in 9 of the 23 sub-sectors. Wage cost growth in services and utilities was above trend, while manufacturing and construction wage cost growth was below the quarterly trend.

   



• 2. Rural wages -

  Citi analysts see continuation of two broad trends. Firstly, rural wages struggled to completely adjust for inflation. Secondly the real wage growth in the non-farm sector (-2.3%YY) continued to underperform the farm sector (-0.6%YY) in Q2FY23. However, sequential rural wage growth momentum indicated early signs of improvement.


• 3. Favorable trends in CMIE employment -

  As per CMIE data, employment in the manufacturing sector grew at 19%YY in Aug-Oct FY23 period vs 5%YY during the same period last year. The key message from CMIE employment data was the pickup in manufacturing employment particularly in rural areas.




• 4. Implications on Consumption -

  Citi analysts expect a higher momentum in rural demand basis the above trends. They believe rural demand recovery is dependent on pick up in real rural wages. Urban consumption is supported by strong wage growth in the formal sector. Urban demand momentum may get impacted due to – (a) Muted formal sector job growth, (b) Declining impact of revenge spending and excess saving, and (c) Rising interest rates.