If any proof were required
that it is growth that creates jobs and higher incomes, and not doles or
artificially-created work, the latest data generated by the Labour Bureau
should dispel it.
A
report in The Indian Express today (7
January) says rural wage growth rose barely 3.8 percent in November
year-on-year, apparently the lowest since July 2005. That was the year in which
the UPA launched the Mahatma Gandhi National Rural Employment Guarantee Act
(a.k.a., NREGA), a make-work programme for providing 100 days of work for
anyone demanding it. One person from a household if guaranteed work even if there
is actually no productive work available.
The
key to proving that NREGA may be doing less for the worker than growth lies in
comparing relative GDP growth rates during the four-year period from 2010-11 to
2013-14, NREGA spends, and wage growth trends.
This
is what the numbers show. The overall NREGA wage spends remained in the range
of Rs 26,000-29,000 crore all through these four years. In other words, they
plateaued. Since minimum wages were raised every year by indexing to inflation,
this means fewer people got jobs under NREGA even though their wages were
higher.
(The wage figures here are not the total annual spends on NREGA, as
administrative and material costs are excluded. These figures indicate only the
wage element in NREGA costs. Actual NREGA expenditures were higher.)
But
between 2010-11 and 2013-14, GDP growth fell from 8.9 percent to 4.7 percent
steadily. And rural wages followed the same trajectory.
Wage
inflation peaked in 2010-11, and then started falling to reach last November’s
dismal number of 3.8 percent.
The
Analysis, released last month by Chief Economic Advisor Arvind Subramanian,
makes this observation: “The rate of growth of rural wages, after having
averaged 18 percent (26 percent at its peak) for the previous five years, has
now decelerated sharply into single digit territory. This reflects strong
disinflationary pressures in agriculture and signals a slack in the labour
market.”
Normally,
a slack in the labour market should mean a boom in NREGA employment, as people
not getting jobs anywhere should be flocking to it. But the opposite seems to
have happened despite higher NREGA wages.
Did
UPA let down its biggest rural constituency just when they needed it the most?
The
Mid-Year Analysis observes: “A dramatic change seems to have happened to rural
labour markets since 2012 because wage growth has plunged. A combination of
softness in the economy and reductions in MGNREGA expenditures (declines of 3
and 36 percent in the last two years) have played a key role. If these trends
continue, rural wage growth can continue to decelerate, further moderating
inflationary pressures.”
The
point about NREGA (or MGNREGA) is this. Since States are bound to offer
employment to anyone who demands it, and wages have been raised every year due
to high inflation, the fall in demand for MREGA employment is surprising –
unless one were to conclude that the scheme was allowed to atrophy and poor
implementation was deterring more people coming forward for jobs even though
they needed it.
This
is the paradox, since actual rural wage growth rates were falling between 2011
and 2014 at a time when NREGA wages actually went up consistently due to
inflation indexation. Between early 2011 and April 2014, NREGA wages went up by
30 percent from a range of Rs 117-181 to a range of Rs 153-236 per day for
various states.
So,
taking these factors together, it is more than likely that falling growth was
impacting wage growth more negatively than a falling NREGA workforce (which was
being paid more).
Clearly,
the NREGA scheme needs major rework and appears to be of only marginal utility
in helping improve rural incomes. The scheme possibly needs to remain in places
of extreme poverty, but if we accept that growth determines wages (and hence
incomes for many rural people) more than NREGA, there is a case for shifting
investments to projects that really deliver growth.
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