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LATEST NEWS UPDATES | Higher NREGA payouts stoking inflation fears

Higher NREGA payouts stoking inflation fears

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published Published on Mar 27, 2012   modified Modified on Mar 27, 2012

The wages under the government's flagship rural employment scheme have risen following adjustments for price rise, creating apprehension that this may add to the inflationary pressures by making farming more expensive. 
NREGA wage
The government had early last year benchmarked wages under the Mahatma Gandhi National Rural Employment Guarantee Act to retail inflation to ensure a real wage of Rs 100 a day to workers seeking employment under the scheme. 

Under the first such revision, minimum wages have risen between 0.8% in Orissa and 24% in Karnataka, Rural Development Minister Jairam Ramesh said in Parliament. 

The minster later said the government is likely to bring in a legislation in the second half of this session to delink MGNREGA wages from the minimum wage rate prescribed by the state governments. Experts agree that wages need to be adjusted for inflation, but argue that this will make inflation management that much more difficult. 

"Society should get ready to pay higher prices for agricultural goods as this (higher MGNREGA wages) will certainly increase the demand for higher minimum support prices," said Ashok Gulati, chairman of the Commission for Agricultural Costs and Prices. 

In several states, the wages under the scheme set a floor for agriculture labour rate, suggesting that the rise in MGNREGA wages will lead to a rise in farm labour costs. 

In all but seven of the 28 states, the revised NREGA wages are higher than the prevailing minimum wages, including predominantly agricultural states like Uttar Pradesh, Haryana, Punjab and Bihar. Over the past three years, agricultural farm wages have increased by nearly 70%. 

Food inflation has risen rapidly to 6.1% for February from a negative 0.52% in January, pushing the overall inflation to 6.95% in February from 6.55% in January. The agriculture ministry has already cautioned that the scheme has led to a reduction in the availability of farm labour.

There has even been a suggestion that the scheme should be suspended in the peak farming season. Abhijit Sen, a planning commission member, however says the revision should be treated as a routine indexation that cushions the impact of inflation on the poorest section of the society. "Any form of indexation adds to inflation propagation. 

Why make a special issue about indexation for the poorest sections of society when everyone else already receives this benefit? The distributional issue must not be ignored," Sen said. "One way to break this inflationary cycle is to ensure the NREGA workers are also adding to productivity so the supply side gets boosted," said DK Joshi, chief economist, Crisil, "This is not happening right now."

The Economic Times, 27 March, 2012, http://economictimes.indiatimes.com/news/economy/finance/higher-nrega-payouts-stoking-inflation-fears/articleshow/12420785.cms


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