For example, wage increases have accounted for the largest share of increase in paddy input costs (Chart 8). Nominal rural wages have grown at a sharp pace during the last five years. Because so many Indian workers are at subsistence wages, higher food prices do drive rural wages higher, and there is some evidence for this before 2007.
From 2007 onwards, however, econometric tests suggest causality has flowed from wages to prices, underscoring the role of rural wages as a major determinant in food price increases. So why has rural wage growth been so strong?