Thursday, December 8, 2011

NREGS and mechanisation

Interference with price signals has been the bane of public policy in India. The latest example is the labour market distortions caused by wage guarantee schemes. Business Standard highlights the sharp increases in famr labour wages between January 2007 and April 2011. It is estimated that farm wages have risen by an average of 70% across the country in the past four years due to the success of the National Rural Employment Guarantee Scheme (NREGS) which has been in operation in all Indian districts since 2007.



One happy consequence of scarce and costly manual labour has been the pace of farm mechanisation, as manifested in increased use of tractors, combine harvesters, small tillers, de-weeders and small power-driven sprayers.



The BS article writes about the factors driving increasing mechanisation,

"Such high wages not only squeeze farmers’ margins, but also crimp availability of labour. Factors like MNREGA and the prevalent socio-economic conditions lead to a 30-40 per cent shortage in manpower, which, in turn, leads to escalating costs year after year... the overall harvesting cost of sugarcane in Tamil Nadu has risen from Rs 300 a tonne to Rs 500-600 over recent years. And, that it touches Rs 700 a tonne during peak harvest... a pair of bullocks cost Rs 50,000 and feeding these requires another Rs 5,000 per month. Though used only for a month, they need to be fed for the entire year... bullocks are a hugely expensive proposition in Indian farming."

1 comment:

Anonymous said...

I think the higher farm labor wages is a good things as long as the farmer is able to recoup the increased labor costs. But since most of the producer prices of farm products are not market determined and instead forced upon by institutions and traders, rising labor costs isn't a win-win situation.