Far from being a game changer, MGNREGS is increasingly proving to be full of supply-side problems?from delays in wage payment and non-tracking of transactions to allegations of corruption and low-quality work resulting in unproductive assets. Faithfuls still want more of it, with more than 100 days? employment, extension of minimum wages to the scheme, etc. Sceptics question the quality of work and its egregious consequences?its contribution to wage hikes in sectors such as agriculture and manufacturing, de-skilling of rural labour, incentivisation against migration, and perpetuation of India?s structural unemployment.
Data shows that wage rates for agriculture operations have increased significantly in recent years. Except for Andhra Pradesh, Karnataka, Kerala, Punjab and Himachal Pradesh, MGNREGS wages are higher than minimum wages in all states. These wages are linked to the CPIAL index; hence it has been made inflation proof. MGNREGS, being an across-the-board guarantee scheme, eliminates two important criteria inherent in an EGS, particularly of the Maharashtra variety: (a) the programme should not compete with agricultural labour hiring decisions, and (b) the programme should generate assets that virtuously affect agricultural productivity. The mandated 100 days of employment
are expected to come into play during the lean season when rural labour is most vulnerable. But this plays out quite differently.
The rural labour market in India is not a classic competitive labour market. At best, it offers imperfect competition, with workers facing high costs to seek and switch employment, and monopsony power of land owners which leads to low wages. The possibility of an alternate source of income raises the reserve wage of all rural workers. A guarantee of wages introduces a contestability effect, which leads to increase in private sector wages and employment.
MGNREGS work also competes with agriculture work as sites of work are in the same location. The same labour may work in both and this has created bargaining space for workers. A FICCI survey shows both wage increases and shortage in labour availability because of MGNREGS. Skill upgradation and migration are mostly triggered by the mismatch of demand for labour, skills and location of workers. But both stand relegated to the
background with the availability of MGNREGS employment.
It is also plausible that both wages chase each other to create a wage spiral without productivity gains. Rising wages are a sign of a healthy economy if accompanied by productivity increases, which do not seem to be there in agriculture. MGNREGS works also appear to be unproductive, with most earth work not surviving beyond one rainy season. The scheme mandates that material components should not be more than 40%, so building long-lasting tangible assets is often impossible. How does MGNREGS play a role in creating assets that virtuously affect agricultural and rural productivity? Anecdotal experience shows that one may not need to work hard in MGNREGS as it is not strongly monitored. An entitlement programme will have to provide work to everyone once it is demanded, regardless of productivity. While it gives purchasing power to needy people and empowers them, its spinoffs can be disastrous. With extremely low requirements of productivity, output and quality, wage can be strategically distributed among workers and agents.
This does not augur well for an economy that needs to be launched into the orbit of productivity growth. How does the choice architecture of the scheme make participants and society at large better off? Since a wage-linked spiral takes place, agricultural and industrial wages go up.
If shortage of labour is experienced continuously, businesses do not expand to absorb structural unemployment and tend to take strategic decisions to replace labour instead. Creation of unproductive assets and productivity decline do not put the economy into a virtuous cycle.
Those getting attractive wages from MGNREGS and a food subsidy are reported to be not working for the entire period possible. Not only do they lose wages for the work foregone, the economy?s productive deployment of resources suffers too. Workers do not migrate and fail to achieve all the advantages that migration delivers. Net result is a low productivity trap for workers. When agriculturists shift to mechanisation, there is loss of jobs and loss of skill-sets which would have been acquired otherwise. All this eventually militates against the workers. While supply-side problems can be surmounted through IT, GPS-based monitoring and BC payments, mitigation of design and scoping problems is daunting. Here are some suggestions.
First, since the demand for 100 days wage is not universal, and it is most required in the poor central Indian & eastern states, the scheme can be concentrated in the 200 poorest districts that are located in central & eastern India as well as drought-prone pockets of other areas. Second, MGNREGS should provide a guaranteed wage that is better kept at slightly lower levels than the minimum wage?to meet a desperate need for work on the one hand, and to not compete with more productive work on the other. The problem of MGNREGS wages having a deleterious effect on more productive sectors of the economy is best handled if the guaranteed wage is not indexed annually to CPIAL, but revised once in three years. A lower guaranteed wage will also remove incentivisation for maximising MGNREGS work whether there is any need for it or not. This in itself will reinforce the demand for work only in the poor areas, where it has got the highest relevance, and only during the lean period.
MGNREGS seems to be creating a spiralling wage cycle for agriculture, creating labour shortages for urban and industrial India, and does not seem to be helping workers to get out of structural poverty. Instead of being a ladder out of poverty, will it prove to be a snake (to take an analogy from Amartya Sen), dropping the poor into a persistent poverty trap?
The author is the Social development Specialist of MEPMA, Andhra Pradesh. Views are personal