Home >Opinion >MGNREGA: A tale of wasted efforts

This week marked the eighth anniversary of the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), the United Progressive Alliance (UPA) government’s key rural intervention, launched in 200 districts initially in February 2006.

To the extent that such populist schemes helped raise wages without raising productivity. They have contributed more to inflation than to rural wealth. Worse, such schemes have undermined rural prosperity by cornering resources that may have been better utilized in projects such as rural roads, water systems, cold storage facilities and agricultural research that could have sustained rural growth over the long term.

The government has spent roughly Rs2.3 trillion cumulatively on the scheme, without creating any durable assets that could spur rural growth on a sustainable basis. To be sure, those at the bottom of the rural pyramid did witness a turnaround in fortunes over the past decade. Wages of rural labourers have seen a sharp spike since the mid-2000s, after years of stagnation. However, estimates by the chairman of the Commission for Agricultural Costs and Prices, Ashok Gulati, show that the fast rise in farm wages owe more to the “pull effect" of growth (the construction boom, for instance, raised demand for labour and thereby wages) than to the “push effect" of interventions such as MGNREGA.

The UPA’s strategy of artificially boosting rural consumption through subsidies and doles seems to be reaching its logical limits now, with the rural economy slowing after years of steady growth. Three pieces of evidence attest to the turning tide in rural India. First, data from the labour ministry shows that wage growth of rural unskilled labourers has fallen to 15% in end-2013 after scaling a peak of 22% in mid-2011. Adjusting for inflation, the fall looks even more dramatic. After witnessing average real wage growth of 11% and 10% respectively, in 2011 and 2012, rural labourers saw an anaemic wage growth of 3% in 2013. Real wage growth now seems to be lower than what it was when the UPA first assumed power in 2004.

Second, the earnings of consumer goods companies show a marked deceleration in rural sales compared with the past few years. In a December interview to Mint, Dabur India Ltd’s chief executive officer Sunil Duggal said that rural growth had flattened out after several years of rapid growth. Other companies have echoed similar concerns over the past few weeks. Third, the December assembly election results suggest that inflation has become the key concern of voters in urban and rural areas alike, as voters face a bleaker economic future. Even in rural Rajasthan, the Congress-sponsored entitlement raj failed to douse the fires of discontent arising from slowing income growth and rising inflation.

It is still too early to say if 2014 will be the ultimate moment of reckoning for the myopic UPA leadership. But it is quite evident that the neglect of rural investments in favour of short-term palliatives to prop up consumption has begun to extract a heavy toll.

After the disaster of the Bharatiya Janata Party’s “India Shining" campaign, the UPA rightly identified mitigating rural discontent as a key priority. Yet, it failed to develop a strategy to raise rural productivity, which would have ensured that the rural gains are self-sustaining. The Rs2.3 trillion wasted on the MGNREGA programme could have been used to build roughly 45,000 kilometres of rural roads (assuming road construction costs of Rs5 crore per kilometre). The multiplier effect would have raised rural incomes far higher, and by linking farms to markets better, it would also have curbed rather than stoked inflation. One can offer similar examples in public health or water systems.

The UPA chose to fritter away the resources generated by high growth on shoddy populist initiatives. Most of the “radical" solutions the government advocated, ranging from the employment guarantee programme to farm loan waivers were aimed at providing temporary relief rather than addressing the structural problems of agriculture and rural development. The rural vulnerabilities remained hidden during the phase of high growth, only to resurface now.

With economic growth slowing, global commodity prices stagnating, and a mounting fiscal deficit limiting the possibility of sharp hikes in farm support prices, the risks to rural incomes have spiked sharply. What has started off as a slowdown in wage growth may eventually turn into a correction in real wage levels. It is ironic how the clumsy efforts of the UPA to address rural discontent have led to the persistence of the problem after nearly a decade of wasted efforts.

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