Column : Safety net becomes a hammock

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: The Rs 39,000 crore allocation to NREG in the Budget may be the largest allocation to a poverty reduction programme since independence. If taxes are the price to pay for civilisation and NREG-type programmes are the cost of getting reformist governments elected then so be it. NREG, till now, has little to do with employment, job creation or skill development and its primary purpose was to create a safety net for the desperate rural poor . So far so good.

But the Budget increase in the wages under NREG from Rs 60 per day to Rs 100 per day takes it to dangerous territory . Wages in dry land agriculture today are far below this level and no employer would or should (given current productivity) be willing to match this. This means that the government has created an “above market” and “above productivity” wage rate that could distort labour markets by creating incentives to move away from non-NREG work in rural areas to NREG work. This could not only retard non-farm job creation but sabotage incentives to upgrade skills and work hard. The safety net could easily become a hammock. This may not happen in next year and the decision could be reviewed but that is unlikely given labour market programme optics that make them political one-way streets.

If the objective of the new NREG wages is to accelerate the farm to non-farm transition then it is welcome because of our pathetic agricultural productivity; India is the largest producer of milk in the world but 75 million people produced 100 million tonnes but the US produces 60 million tonnes with 100,000 people. But does the government really want to be the largest rural non-farm employer? Is NREG creating a bridge to sustainable employment or a massive make-work scheme?

There are two fundamental and closely related issues here: How are wages set and why are they so low in rural India? Can NREG work be structured to create assets and capabilities that would increase productivity and therefore wages of rural workers? Can NREG II combine higher wages with capability and ecosystem building? It not only can but it must.