New Delhi, July 4 (Mayank Nigam) Positive turn in real wages emanating from the moderation in inflation would provide succour to personal consumption demand which has been sluggish in the past few quarters, said India Ratings and Research (Ind-Ra) on Tuesday. “This may help revive broad-based consumption demand, which is highly skewed in favour of the goods and services consumed by the households belonging to the upper income bracket,” said Paras Jasrai, Senior Analyst, Ind-Ra. The rating agency expects the private final consumption expenditure (PFCE) to grow 6.7% year-on-year in FY24.Ind-Ra said that real wages in rural areas have been stagnant since Covid pandemic. It further said real wages in agriculture activities contracted 0.7% yoy and 3.4% yoy, respectively, in FY21 and FY22. “COVID-19 led reverse migration kept the nominal wage growth less than the inflation witnessed in rural areas during this period.
As the economic activity witnessed a revival in FY23, migration to urban areas picked up and the same is getting reflected in the uptick in the urban worker-population ratio and labour force participation rate, as per the Periodic Labour Force Survey data,” the rating firm said. Ind-Ra said that near stagnation in real wages for the lower income strata in FY23 had its impact on PFCE growth which dropped to 2.5% yoy in 2HFY23 from 13.6% yoy in 1HFY23. “Demand for mass consumption items such as non-durables (annual growth in consumer non-durable production in FY23: 0.5%) and lower-end white goods (such as entry level mobile phones, two-wheeler sales) has been tepid,” it noted. Ind-Ra believes that the change in consumption mix witnessed during and after Covid-19 may get corrected with a meaningful pickup in real wages in FY24.