Food prices: A bricks and mortar problem

Three months since journeying more than 700 miles (1,130 kms)from his village in Chhattisgarh to take a job in this bustling city near the capital, New Delhi, Charan is already looking forward to a 10 percent pay rise. He isn't an engineer or programmer.

He hauls bricks and sand at a local construction site for less than $100 a month.
India's biggest cities face a worsening shortage of migrant manual labourers like 26-year-old Charan, who goes by only one name. While India has long suffered from a dearth of workers with vocational skills like plumbers and electricians, efforts to alleviate poverty in poor, rural areas have helped stifle what was once a flood of cheap, unskilled labour from India's poorest states.

Struggling to cope with soaring food prices, this dwindling supply of migrant workers are demanding - and increasingly getting - rapid increases in pay and benefits.

"After paying for food we are left with almost nothing. We need a wage hike," said Charan, who sends a part of whatever he and his wife, who works at the same site, manage to save to their parents back home in Chhattisgarh.

If their employer refuses to give them an adequate raise, they are confident they'll find better-paying jobs at one of the hundreds of other sites dotted around Gurgaon.
Such gains by migrants and the rural poor don't come without a cost to the rest of the country.

More than pressuring corporate profits, these rapid blue-collar wage increases threaten efforts to quell inflation by new Reserve Bank of India (RBI) chief, Raghuram Rajan, the former International Monetary Fund economist who took over as governor at the RBI in September. Rajan has made price stability a policy priority, calling it a prerequisite for reviving economic growth that has slipped to 5 per cent a year, the lowest in a decade.

Despite little evidence that interest rates can control food prices, Rajan has raised rates twice since taking over to prevent food-price inflation from spilling over into the wider economy. He has warned of another hike next month if prices don't cool significantly.

"India has become a high-cost economy," said Devendra Kumar Pant, chief economist at India Ratings & Research. "Persistently high inflation is a recipe for disaster." Take onions, which figure in almost every Indian meal. Prices for onions shot up 190 per cent to $1.60 a kilogram in the past year, making them more expensive in India than in the United States, where incomes are roughly 35 times higher. That helped push vegetable prices up 95 per cent in the past year and pushed India's headline inflation rate in November to 7.5 per cent, a 14-month high.

And while vegetable prices are expected to start easing next month following a bumper harvest, subsidised government purchases of grains and rising farming costs mean overall food inflation is not likely to slow down much.

Farming costs are also being driven higher by a government-run, rural employment guarantee programme that uses public works projects to provide at least 100 days of guaranteed wage employment each financial year to each rural household with adult members willing to work on irrigation, reforestation, soil conservation and road construction.

Since its rollout in 2006, the programme has helped boost livelihoods on poor Indian farms. In the largely rural Andhra Pradesh, according to one study, the programme has enabled households to boost spending by a tenth, and raise spending on items other than food by almost a quarter.

Rural wage increases have jumped, from 2.7 percent a year before the programme to 9.7 per cent after its passage. Since 2009, nominal agricultural wages have climbed by more than a fifth a year, with non-farm rural wages up almost 17 per cent.
Adding to wage inflation is a pickup in economic activity and job creation in laggard states of central and eastern India, which in the past used to be the main source of migrant labour.