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Despite note-ban, rural wages on a steady climb in November: Report

The purchasing sentiment of consumers fell steeply by 0.42 points due to demonetisation, with the buying propensity index standing at 0.26 points in December, according to TRA Research.

By: PTI | Mumbai |
January 29, 2017 11:32:35 am
 demonetisation, note ban, rural wages, nomura, agriculture, november demonetisation report, november financial report, nomura india chief, economist sonal varma, TRA research, rural economy, shadow economy, indian economy after demonetisation Image for representational purposes.

Defying the impact of the note-ban which has yanked down consumer sentiment, the rural wages have been on a steady upward spiral, rising by 7.3 per cent in November, suggesting a likely release of pent-up demand after demonetisation, says a report. “Nominal rural agricultural wages rose to 7.3 per cent year-on-year in November, from 6.9 per cent in October, remaining well above the previous 12-month average of 4.8 per cent,” Japanese brokerage Nomura said in a note. “We expected rural wage growth to moderate in November, as we thought demonetisation would hurt the more cash-reliant rural economy,” Nomura India chief economist Sonal Varma said in the note. It can be noted that this comes amidst a slew of reports coming in suggesting a deeper cut on the economy.

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The purchasing sentiment of consumers fell steeply by 0.42 points due to demonetisation, with the buying propensity index standing at 0.26 points in December, according to TRA Research.

This was 0.68 points in November.

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Noting that the buying sentiment in December has fallen precipitously to the lowest in nine months, the report said the December fall was probably when the pain of demonetisation began to be felt more severely after the first salary cycle.

Rural wages may have defied this demonetisation effect because of the hike in minimum wages announced by the government in September, Varma reasoned and cited that Reserve Bank data, which shows that the revision in basic wages, including variable dearness allowances, worked out to an overall increase of 42 per cent and would impact rural wages as well.

It can be noted that rural wage growth has only recently started to trend higher, after almost two years of stabilisation.

“The resilience of nominal rural wage growth, despite demonetisation and amid lower inflation (which means higher real wages), suggests that the current slowdown in rural demand is transitory and can give way to a sharp release of pent-up demand once the economy is sufficiently remonetised, which we expect by end-March,” Varma said.

It can be noted that two-wheeler sales, which is primarily a rural market product, declined by 5.9 per cent in November and plunged 22 per cent in December.


According to auto industry lobby Siam, after a pick-up on festival sales in September and October, note ban saw sales skidding in November. Car sales contracted 5.18 per cent to 1.54 lakh units.

Similarly two-wheeler sales declined 2 per cent to 3.88 lakh units in November while bike sales declined by over 10 per cent to 7.78 lakh units. The three-wheeler sale plummeted by 26 per cent to 33,662 units.

The declines were much steeper in December, plunging to a 16-year low slipping by 18.66 per cent, according to Siam data.


Similarly, FMCG firms said they were expecting 5-6 per cent drop in bottomline due to the note ban in the third quarter, which was visible in the HUL and ITC numbers announced last week.

A Kotak Institutional Equities report said FMCG companies would see their aggregate revenue and net profit declining by 0.2 per cent and 5-6 per cent, respectively in the third quarter.

Real estate sales, another key segment of economic growth, has taken a big hit from note ban, with sales plunging by about 50 percent since the noteban.

The registration of properties also saw a decline. In the process, developers are estimated to have incurred a revenue loss of Rs 22,600 crore because of the cash ban while state governments suffered a notional loss on stamp duty of Rs 1,200 crore, as per property consultant Knight Frank India.

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First published on: 29-01-2017 at 11:32:35 am
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