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: Should the government become the employer of the first resort in villages? And is that a good thing? The Budget has proposed an increase of NREG wage to Rs 100 per day and also proposed to maintain this at real levels. The consumer price index for agricultural labour may be used for indexing purposes. At the level most Congress MPs may be looking at this, it seems a great idea. NREG-I, with wages at Rs 60 per day, addressed the issue of near stagnant rural employment and has impressed even its early critiques. If NREG-II hikes the wage, it can only get better, right? Wrong. If a mandated rural welfare wage is appreciably above wages paid for unskilled rural jobs, then welfare projects become the first choice for job seekers. At an inflation-indexed guaranteed level of Rs 100 per day, NREG-II definitely will pay wages more than what unskilled farm labour gets in most regions and for most crops. Add the fact that rural labour is migratory—migration means extra costs—and NREG is home-based, the differential is more. Already, under NREG-I, occasional shortage of farm labour was reported. This will exacerbate. One way out may be to offer NREG work during non-sowing season. But it is not clear whether this is administratively or politically feasible.
The issue however goes far beyond big farmers having to pay more for labour or labour shortage during sowing seasons. And here mention must be made of the classical argument that high wages will lead to more capital being employed in farming, which is a good thing. The fact is Indian farming is structurally unfriendly to significant capital deployment. And that brings us to the main point: rural wages are low because the rural economy lacks dynamism. NREG is a very basic workfare programme with zero emphasis on creating economic dynamics. It can be and is very crucial as a timely welfare programme. But it can also become, especially when it pays above market wages and keeps on expanding in scope, a big disincentive against changing rural economics. Much of the Congress is perhaps uncomfortable with factory employment for rural workforce. But think of this irony: if the Congress can build good roads this time, if its rural health insurance works, if primary education gets better, above-market wage NREG work will mean wasting improved human capital. India needs creative disruption of rural stasis. An NREG job...
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