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.
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
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
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
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.