Consider two very different parts of India and two seemingly unrelated situations. In Madhya Pradesh, implementation of the National Rural Employment Guarantee Scheme (NREGS) has resulted in agricultural wages rising from Rs58 per day in 2005-06 to Rs91 in 2009. In Punjab, agricultural labourers are facing distress at the hands of rich farmers (“Survival of Agricultural Labour in Punjab: A Burning Question", the Economic and Political Weekly, or EPW, 18 July). Is there a link between the two?

It is now widely believed that NREGS has created a wage-floor for an otherwise hapless pool of unskilled rural labourers. It has also been commented, notably in the 2009 World Development Report, that NREGS has acted as an implicit barrier to mobility. These aspects have been hailed as providing a measure of relief to labourers who have to travel to far-flung areas of the country in search of work.

Illustration: Jayachandran / Mint

It is clear, however, that unintended effects have emerged from the implementation of the programme. This has resulted in a drying up of labour supply for agricultural operations in Punjab and other states.

In Punjab, to cite documented examples, it has unleashed violence against labourers. In Ferozepur district, rich farmers have tried to lower the wages of local labour forcibly in response to their rise. Last year, the average rate for rice transplantation work was Rs2,000 per acre. This year, big farmers have artificially brought it down to Rs1,000: Any farmer who employs labour above this rate will face a fine of Rs5,000 enforced by the farmers themselves.

Elsewhere in the state—in Mansa, Sangrur and Bathinda districts—allegations that NREGS is not being implemented have surfaced. The EPW article mentioned that the state government has returned Rs350 crore of unused NREGS funds to the Union government.

At the moment, this sort of coercion is limited to a few instances in one state. But complaints related to a cost push on farms have been voiced in states as diverse as Orissa and Madhya Pradesh. This has serious food security implications, if the situation is not handled well.

One reason for demanding ever higher minimum support price (MSP) for wheat and rice by farmers is the steady rise in the cost of inputs (which includes labour costs). This rise in MSP has been blamed for the high food subsidy bill and the rise in food costs faced by, among others, labourers who benefit from NREGS.

It can be argued that the cause and effect sequence is a bit hazy at the moment, but what cannot be denied is that higher farm costs from a decrease in labour supply are a reality in many parts of India.

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