Context

• There is now a plethora of evidence that the economy has been cooling down over the last three years.

• Official data was slow to pick up the trend, but data from private sources on indicators such as sales of consumer durables and automobiles clearly show that it is largely a result of declining demand, particularly in rural areas.

• The Union budget presented on 5 July was expected to address some of these concerns.

• However, it was a missed opportunity, with no effort being made to increase spending in rural areas, except for the electoral promise of cash transfer to farmers.

Effect of decline in Allocation to MGNREGA

• Also disappointing was the government’s approach in dealing with most rural development programmes.

• These not only directly contribute to creating rural infrastructure and assets, but also indirectly help increase rural demand and employment. For most of these programmes, the budget expenditure was kept constant or lowered.

• Of particular importance is the all-India scheme under the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA).

• Its budget allocation has fallen compared to the revised expenditure of last year, and is insufficient, given the wage-payment arrears.

Weakening of MGNREGA

• The National Democratic Alliance (NDA) showed apathy towards the rural and agricultural sectors during its first term in government, and in many ways is continuing the flawed policies of the second term of the United Progressive Alliance (UPA) government.

• The UPA, which enacted MGNREGA and reaped political dividends for its successful rollout during its first term, contributed to the weakening of the programme as well as the changing of its basic character.

• The government kept the budget allocation low and created administrative bottlenecks that stifled the programme. This trend has continued under the NDA.

• This alliance also altered the basic character of the scheme.

Original Vision for MGNREGA

• MGNREGA was envisaged as a provider of rural employment to casual workers at government-mandated minimum wages set above market wages.

• This was the case at its 2006 launch.

• The National Sample Survey Office (NSSO) has been tracking wages received by casual workers employed under MGNREGA and private markets since 2007-08, when it introduced a separate category for MGNREGA work.

• This has been retained even in the Periodic Labour Force Survey (PLFS), the report of which was released recently.

• In 2007-08, the second year of MGNREGA implementation, wages under the programme were 5% higher than market wages for rural male workers and 58% higher for rural female workers.

• This was one of the reasons that the programme attracted almost 50% female workers, in contrast to the trend of declining female workforce participation since 2004-05.

Changes in structure

• By 2009-10, MGNREGA wages were only 90% of market wages for males, but 26% higher than market wages for females.

• By 2011-12, they were lower than market wages for both category of workers, but for females, they were close to market levels.

• The 2017-18 PLFS estimates show that private market wages for males were higher than MGNREGA wages by 74%, and female market wages were higher than MGNREGA wages by 21%.

• Clearly, no male worker is going to demand MGNREGA work when he can get a much higher daily wage with the same effort .

• However, women continue to demand and work under MGNREGA, though market wages are higher, because of non-availability of work and discrimination as well as exclusion from the private labour market.

Women participation more

• A peculiar result of this is the overwhelming participation of women in MGNREGA in southern states, where casual wages are higher in general, with Kerala reporting only female workers.

• However, many states, including Gujarat, did not report any MGNREGA work in 2017-18. Keeping MGNREGA wages significantly lower than market wages is a deliberate attempt to finish the programme.

Half of the national minimum wage

• MGNREGA wages are less than half of the national minimum wage of ?375 per day (as on July 2018) proposed by an expert group.

• Even the Economic Survey presented on 4 July has a chapter on minimum wages, which argues in favour of keeping minimum wages at a sufficiently high level to reduce poverty and inequality.

• At a time when the government is pushing for a minimum wage code, the largest government-run programme has been violating state minimum wages for almost a decade.

• MGNREGA could have been the lifeline to revive the rural economy, which is in distress.

Ineffective MGNREGA at present

• However, the political slugfest and flawed policies of the government have led to a situation where MGNREGA, bereft of its original character, is unable to provide a stimulus to the rural economy, despite the strong evidence of it having pushed up rural wages and incomes during the first five years of its implementation.

• It also created rural infrastructure and provided much-needed employment to the country’s rural population.