Friday, June 3, 2011

The downward spiral with public policy?

Consider the following news stories

1. The MGNREGA moves from being an unemployment insurance program to becoming a market wage jobs entitlement program. The pressure to raise wages every year is increasingly driven by populist considerations,

"The wage rates for workers under the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) have been increased. According to the rates revised by the Ministry of Rural Development with effect from January 1, 2011, the wages will go up by 17-30 per cent."

2. In fact, if ever a government wanted to design a policy that boosts aggregate wages across all sectors, there could not have been anything better than MGNREGA. Businessline has these latest Labour Bureau figures,

"Andhra Pradesh, for instance, has seen farm wage rates – the average taken for ploughing, sowing, weeding, transplanting and harvesting operations – going up 40.3 per cent in 2009 and 27.8 per cent in 2010. It is no different in other States, where, in the last year alone, the price of agricultural labour surged 15 to 20 per cent in Haryana, Bihar, West Bengal and Assam, 32 per cent in Punjab, and 43 per cent in Orissa."

(Given the concerns about the low wage rates in China and its impact on structural imbalances there, it may be worthwhile for the Chinese government to embrace its version of an employment guarantee scheme!)

3. To square the circle, the wage boost coupled with the upward movement of fertilizer prices (thanks to this), means higher cost of agriculture production, which naturally generates pressure for higher Minimum Support Price (MSP). This was therefore inevitable,

"The Centre is set to announce significant hikes, ranging from 15 to 17 per cent, in the minimum support prices (MSP) of most crops to be planted during the ensuing kharif season. The higher MSPs, while expected to further fuel inflationary pressures, are meant to compensate farmers for the surge in cultivation costs experienced by them in the last couple of years".

4. And high MSP also leads the way to record procurement, with all its attendant storage problems and carrying costs. Going by current trends, wheat procurement during the ongoing 2011-12 rabi marketing season (April-June) is set to cross 27 mt (of a total wheat crop of 84.27 mt), well beyond the target of 26 mt and the previous record high of 25.38 mt in 2009-10,

"At the start of the current marketing season on April 1, wheat stocks in the Central pool were placed at 15.36 mt against the minimum buffer and strategic reserve requirement of seven mt for that date. By July 1, the stocks are likely to be in the region of 40 mt or twice the corresponding required level of 20.1 mt."

So we appear to have this vicious spiral - higher farm wages leads to higher agriculture input costs begets higher MSP begets higher food prices.... Not to speak of the impact of higher farm wages on non-farm wages and the larger economy itself. See this, this, and this.

It is really unfortunate that our vast academic community has made virtually no serious attempt to assess the economic and social impact of the most important poverty eradication strategy of the times. It is impossible to tease out the magnitude effects of the aforementioned chain of events, without rigorous field surveys, pain-staking data collection over a period of time and from different areas, and comprehensive analysis of this data. In the absence of such research, we are forced to rely on official aggregate data to draw broad, un-quantified, and often vague inferences.


And as if all the aggregate wage boost was not enough, here is more sage expert advise to increase the productivity of NREGA spending,

"Why cannot we have a system, where rural labourers are paid Rs 250 for working eight hours on farmers' fields? Out of the Rs 250, Rs 125 can be underwritten by NREGA, with the balance coming from farmers. We are, then, able to dovetail welfare schemes with productive activity and raise the latter component to 70-80 per cent."

Where and when will all this end?

Update 1 (14/6/2011)

Reuters report points to labor shortages across the country and the role of NREGS in causing it. It also points to the steep increase in farm wages and its impact on food prices.



because of this hike in national food programme, in rural areas labour for harvesting,cutting crop and remove coconuts from trees are effected. at present the demand for labour is most worring . an average of Rs.600/- to Rs.800/- they demanded per day.( maximum of 6 hrs work in two spells).
for food programme work they spent 4hrs in two spells and they get rs.121/-
an autoreksha wala got 800/- excluding fuel rates in urban areas. Rs.600/- in rural area.
MGNRREGA silently effected the rural econamy. the efect of our A.P.GOVT Agricultural policies causes crop holy holyday for the forthcomming season.

Jayan said...

NREGA must not be a first class job provider. In the current form, it helped many farm workers (in the short term) and negatively affected the farmer. Though NREGA is a large project, its success/failure should be seen in a local context. Depending how local authorities utilized the effort, many areas in Kerala had very positive result. In addition to the standard wasteful spending like cleaning the road, there were many useful projects like cleaning ponds, farming assistance (IIRC -- to special group of farmers).

Farm worker rate will be a function of local economy where as the farm product is kind of priced by international pricing or local mandi players.

Govt should continue to assist the farm worker with NREGA. It should also focus on getting the farmer ready with new knowledge , technology, storage, seeds etc.

Anonymous said...

Gulzar, do you see a problem in what Dr. Gulati has suggested regarding subsidising farm labor costs via NREGA? Would it not make it possible to insulate high wages from rising input costs?