Sunday, June 1, 2008

NREGS and foodgrain prices

There have been some recent reports of agriculture labour shortages and rise in the wages of agriculture labour, from many parts of the country. Given the overwhelming presence of National Rural Employment Gurantee Scheme (NREGS) in these areas, questions are being raised about the schemes contribution to these outcomes.

The NREGS is the flagship poverty alleviation program of the Government of India, which seeks to guarantee atleast 100 days of employment every year to the rural poor. It seeks to enhance livelihood security by providing assured Rs 60 per day for 100 days of employment a year to one member of every rural unemployed family

Is NREGS, atleast partially, responsible for this? Is NREGS exerting a "crowding in" effect on labour in the rural areas? Is the alternative availability of NREGS bidding up wage costs in villages? Is NREGS ultimately responsible for higher foodgrain prices? If only theoretically, all the aforementioned remains strong possibilities.

Higher labour costs will ensure that the long exploited agriculture labour will start getting their rightful wages from atleast now. But since labour is a significant component of agriculture costs, any rise in this input cost will put upward pressure on foodgrain prices. Production costs will rise, and atleast a share of the increase will be passed on to the consumers by way of higher foodgrain prices. Whether this is the sequence of events and NREGS' contribution to it, is yet to be fully analyzed.

But, higher wages for agriculture labour and higher prices for agriculture products may actually end up increasing, rather than decreasing, foodgrain production. The favorable turn in terms of trade for agriculture produce may incentivize farmers to make more investments in agriculture and increase their production.

If NREGS is indeed responsible for higher rural wages, then the scheme may have unwittingly enough achieved its objective of ensuring higher incomes for rural labour. That community assets like irrigation channels and small connecting roads have been created in the process is a bonus. But are these gains sustainable? That will be the true yardstick for measuring the success of NREGS.

There are a few other issues that needs to be analyzed to understand the full impact of the scheme. How are the increased incomes being spent? What has been its impact on agriculture production itself? What has been the impact of the scheme on socio-economic outcomes like school enrollment and retention, nutritional and health care parameters?

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