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Our India economist team has aggregated data relating to the impact of
NREGA on rural wages. Wage inflation has risen by 9.7% yoy between
2006-09 post the implementation of the scheme and has accelerated
further into 2010-11. Also, the desire to index NREGA wages to inflation
has effectively institutionalized the wage-price in the rural economy. We
highlight that the sharp rise in wages in rural India is driving the shift
towards mechanization of agriculture. Tractor sales have risen by 13%
during this phase and we expect sales to grow at 12-14% CAGR over
FY11-13E. We are OW on Mahindra & Mahindra.
A comprehensive time series of rural wage data – both agricultural and nonagricultural
– put together by the Ministry of Statistics and Program
Implementation has recently become available. The advent of NREGA has
resulted in a significant structural break in rural wage inflation. The numbers
are truly striking as between 1999 and 2005, pre NREGA, nominal wages in
the rural economy grew at an average annual rate of 2.7% yoy. Post
NREGA, average wage inflation almost quadrupled to 9.7 % yoy between
2006 and 2009. Further, wage inflation continues to accelerate - between
January 2010 and May 2011 (the last date for which this data is available)
annual nominal wage growth averaged almost 20% (18.8 % oya).
Wage hikes are now linked to inflation: As if the pressure from rural
wages to food prices was not enough, the desire to index NREGA wages to
inflation has effectively institutionalized the wage-price in the rural
economy.
This is leading to growing mechanization of agriculture: We are
consequently witnessing that farmers are increasingly using tractors to
substitute labor given the higher wage inflation as well as the growing
scarcity of labor (given that other opportunities in rural India are opening
up). We expect tractor sales to grow at a CAGR of 12-14% over the next
few years.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Our India economist team has aggregated data relating to the impact of
NREGA on rural wages. Wage inflation has risen by 9.7% yoy between
2006-09 post the implementation of the scheme and has accelerated
further into 2010-11. Also, the desire to index NREGA wages to inflation
has effectively institutionalized the wage-price in the rural economy. We
highlight that the sharp rise in wages in rural India is driving the shift
towards mechanization of agriculture. Tractor sales have risen by 13%
during this phase and we expect sales to grow at 12-14% CAGR over
FY11-13E. We are OW on Mahindra & Mahindra.
A comprehensive time series of rural wage data – both agricultural and nonagricultural
– put together by the Ministry of Statistics and Program
Implementation has recently become available. The advent of NREGA has
resulted in a significant structural break in rural wage inflation. The numbers
are truly striking as between 1999 and 2005, pre NREGA, nominal wages in
the rural economy grew at an average annual rate of 2.7% yoy. Post
NREGA, average wage inflation almost quadrupled to 9.7 % yoy between
2006 and 2009. Further, wage inflation continues to accelerate - between
January 2010 and May 2011 (the last date for which this data is available)
annual nominal wage growth averaged almost 20% (18.8 % oya).
Wage hikes are now linked to inflation: As if the pressure from rural
wages to food prices was not enough, the desire to index NREGA wages to
inflation has effectively institutionalized the wage-price in the rural
economy.
This is leading to growing mechanization of agriculture: We are
consequently witnessing that farmers are increasingly using tractors to
substitute labor given the higher wage inflation as well as the growing
scarcity of labor (given that other opportunities in rural India are opening
up). We expect tractor sales to grow at a CAGR of 12-14% over the next
few years.
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