CACP answer to CAGs ire on MGNREGA: Invest more in agriculture

Written by feBureau | New Delhi | Updated: Apr 24 2013, 07:01am hrs
Seven years after MGNREGA came into being, the CAG report tabled on Tuesday in Parliament paints a dismal picture of the UPAs flagship rural employment guarantee programme. According to the CAG, while employment generation fell from 54 days per household in FY10 to 43 days in FY12, states that account for 46% of the rural poor Bihar, Maharashtra and UP utilised only a fifth of the funds made available. In 14 states and one Union Territory, just 30% of the planned works were completed.

A forthcoming study by the Commission for Agricultural Costs and prices (CACP) has innovative solutions to the problems mentioned in the CAG report, as well as to the oft-repeated claim that MGNREGA is driving rural wages beyond control. During FY07 to FY12, nominal farm wages rose by 17.55% per year real wages rose by 6.8% per year the highest since economic reforms began in 1991.

With just 2-3% of all agriculture jobs being generated by MGNREGA once you take into account the 45-50 days per year employment it is clear MGNREGA cannot be driving agriculture wage growth.

CACPs Ashok Gulati, Surbhi Jain and Nidhi Satija construct an econometric model for agricultural wages and find that a 10% increase in state GDP leads to a 2.4% rise in agricultural wages; a similar increase in agri-GDP at the level of each State leads to a 2.1% rise in farm wages.

The impact of MGNREGA is, by contrast, around 4-6 times less. The pull impact of GDP/agri-GDP and construction is much more pronounced, they find, at even the level of individual States as compared to the push impact of MGNREGA.

In the early 1990s when agriculture was growing at 4.8% per annum, the CACP paper points out that real farm wages were growing by 3.7% per annum. In the period from 1997 to 2004, when agri growth fell to 2.4%, wage growth also fell to around 2.1%.

In other words, were the government to increase investments in agriculture, as opposed to increasing spending on subsidies Rs 2 lakh crore has been spent so far on MGNREGA the impact on farm wages would have been higher. An earlier study by Fan/Gulati/Thorat had estimated that the marginal returns on public investments in agriculture are at least 5-10 times more than those on subsidies such as fertilisers, power and so on.