MacroScan (Printable Version) - Is the MNREGS Affecting Rural Wages?

There are many critics and sceptics with respect to the Mahatma Gandhi National Rural Employment Guarantee Scheme, which came into being because of political pressure that managed to overcome quite strenuous opposition from some of the most influential policy making circles. It is likely that much of this criticism is not really because of the declared reasons, like fiscal costs (which are thus far very little) and potential leakage. Rather, the opposition may come from the nagging worry that this scheme has the potential to change the balance of class forces in the countryside.

Of course there are numerous problems with the implementation of the MNREGS: uneven and patchy implementation, corruption and leakages, non-payment of minimum wages in many states and various other problems. Even so, some positive results are already evident. The scheme was a major counter-cyclical buffer in a depressed rural economy that was further ravaged by the global recession that affected the employment of many rural migrants. It added to rural purchasing power among the poorest sections, and thereby raised greater possibilities of economic expansion through multiplier effects, even when other economic conditions have been adverse. Paying wages through bank accounts led to greater financial inclusion of rural workers than has occurred before. Perhaps most significantly, the greater than expected involvement of women workers has been associated with higher absolute wages and reduced gender gaps.

Data from the National Sample Survey Organisation for 2007-08 indicate that even by then the MNREGS had made a difference to wage rates for rural casual work. Between 2004-05 and 2007-08, average real wages apparently increased by around 13 per cent, and more rapidly for female workers. In MNREGS there is hardly any gender gap in the wages, while such gaps are very large in all other work, and in urban wages. Further, on average wages received in MNREGS were significantly higher than those received by casual labour in other kinds of work.

But funnily enough, this very success has now become another source of criticism of the scheme. It is being argued - by rich and vocal farmers, important policy makers and increasingly in the media - that the MNREGS is pushing up the wages of rural workers in a manner that is raising costs of cultivation for farmers and making it hard for them to compete in a very uncertain world economy.

To some it may come as a surprise that this is even seen as a criticism. After all, surely the purpose of any such scheme would be at least partly to improve the conditions and the bargaining power of rural labour? And if that is then reflected in higher wages, should that not be proof of its success?

But no, it seems that we cannot welcome wage increases even when rural labourers are known to be among the poorest people in a country that has some of the worst nutrition and human development indicators in the world. Why? Because then farming will become even more unviable and the large population that is engaged in cultivation will find it difficult to survive.

There are many fallacies in this argument. The tendency of higher rural wages to push up costs of cultivation can be greatly overplayed, because wage payments typically account for only 30 to 35 per cent of total agricultural costs, and that too only when imputed household labour is also included. In fact many small and marginal farming households have also availed of work under the scheme, especially in the lean agricultural season.

In any case, a public procurement system that takes into account all paid labour costs (as the CACP measures do) would adequately compensate for such costs, which would at most lead to only a marginal increase in prices.

Also, the rise in wages that appears from the aggregate survey data is rather small, and certainly tiny in relation to other costs of cultivation that have risen much more sharply over the same period. To take just one example, the price of diesel (which accounts for around 10 per cent of cultivation costs in many areas and dramatically affects the costs of transporting crops to market) has increased by more than 70 per cent since 2004-05, and by more than 15 per cent in the last one year alone. It is interesting that those who are crying hoarse about the adverse impact of a small increase in wages do not seem to care about the effect of rising energy prices on costs of cultivation!

What may be most alarming of all is how farming costs have been rising because of much heavier input use, which is required because of declining soil fertility and degradation of land. But this is something that the MNREGS can help to fix, because it can be used to engage in activities that improve soil quality over time.

Indeed, it is precisely on this issue - of halting the drastic decline in land productivity and enabling more sustainable input use- that both farmers and rural workers can be brought together under the MNREGS. Creative public intervention needs to move in this direction.



Themes > Current Issues	04.02.2011


Is the MNREGS Affecting Rural Wages?

Jayati Ghosh

There are many critics and sceptics with respect to the Mahatma Gandhi National Rural Employment Guarantee Scheme, which came into being because of political pressure that managed to overcome quite strenuous opposition from some of the most influential policy making circles. It is likely that much of this criticism is not really because of the declared reasons, like fiscal costs (which are thus far very little) and potential leakage. Rather, the opposition may come from the nagging worry that this scheme has the potential to change the balance of class forces in the countryside. Of course there are numerous problems with the implementation of the MNREGS: uneven and patchy implementation, corruption and leakages, non-payment of minimum wages in many states and various other problems. Even so, some positive results are already evident. The scheme was a major counter-cyclical buffer in a depressed rural economy that was further ravaged by the global recession that affected the employment of many rural migrants. It added to rural purchasing power among the poorest sections, and thereby raised greater possibilities of economic expansion through multiplier effects, even when other economic conditions have been adverse. Paying wages through bank accounts led to greater financial inclusion of rural workers than has occurred before. Perhaps most significantly, the greater than expected involvement of women workers has been associated with higher absolute wages and reduced gender gaps. Data from the National Sample Survey Organisation for 2007-08 indicate that even by then the MNREGS had made a difference to wage rates for rural casual work. Between 2004-05 and 2007-08, average real wages apparently increased by around 13 per cent, and more rapidly for female workers. In MNREGS there is hardly any gender gap in the wages, while such gaps are very large in all other work, and in urban wages. Further, on average wages received in MNREGS were significantly higher than those received by casual labour in other kinds of work. But funnily enough, this very success has now become another source of criticism of the scheme. It is being argued - by rich and vocal farmers, important policy makers and increasingly in the media - that the MNREGS is pushing up the wages of rural workers in a manner that is raising costs of cultivation for farmers and making it hard for them to compete in a very uncertain world economy. To some it may come as a surprise that this is even seen as a criticism. After all, surely the purpose of any such scheme would be at least partly to improve the conditions and the bargaining power of rural labour? And if that is then reflected in higher wages, should that not be proof of its success? But no, it seems that we cannot welcome wage increases even when rural labourers are known to be among the poorest people in a country that has some of the worst nutrition and human development indicators in the world. Why? Because then farming will become even more unviable and the large population that is engaged in cultivation will find it difficult to survive. There are many fallacies in this argument. The tendency of higher rural wages to push up costs of cultivation can be greatly overplayed, because wage payments typically account for only 30 to 35 per cent of total agricultural costs, and that too only when imputed household labour is also included. In fact many small and marginal farming households have also availed of work under the scheme, especially in the lean agricultural season. In any case, a public procurement system that takes into account all paid labour costs (as the CACP measures do) would adequately compensate for such costs, which would at most lead to only a marginal increase in prices. Also, the rise in wages that appears from the aggregate survey data is rather small, and certainly tiny in relation to other costs of cultivation that have risen much more sharply over the same period. To take just one example, the price of diesel (which accounts for around 10 per cent of cultivation costs in many areas and dramatically affects the costs of transporting crops to market) has increased by more than 70 per cent since 2004-05, and by more than 15 per cent in the last one year alone. It is interesting that those who are crying hoarse about the adverse impact of a small increase in wages do not seem to care about the effect of rising energy prices on costs of cultivation! What may be most alarming of all is how farming costs have been rising because of much heavier input use, which is required because of declining soil fertility and degradation of land. But this is something that the MNREGS can help to fix, because it can be used to engage in activities that improve soil quality over time. Indeed, it is precisely on this issue - of halting the drastic decline in land productivity and enabling more sustainable input use- that both farmers and rural workers can be brought together under the MNREGS. Creative public intervention needs to move in this direction.



© MACROSCAN 2011