Of tractors and rural jobs

Of tractors and rural jobs

Economic actions often have externalities that are difficult to predict, even by seasoned policymakers. On Tuesday, Mint reported one such outcome of the Mahatma Gandhi National Rural Employment Guarantee Scheme, or MGNREGS.

Pawan Goenka, president of the auto and tractor maker Mahindra and Mahindra Ltd, told this newspaper that the company’s tractor sales had increased last year even though rainfall had been the lowest in three decades and farm output had fallen 2.8% in the third quarter. Tractor sales and rainfall usually share a positive relationship, as farmers are able to afford the machines on the back of good rainfall and resultant high output. Goenka surmised the reason behind the increasing sales to be one related to labour shortages in rural areas.

This is where MGNREGS comes into the picture. As the country’s flagship rural jobs scheme engages millions of people in road and irrigation projects, the supply of farm labour has decreased, especially in places that depend on migrant workers. Kerala, Punjab and Tamil Nadu, for example, have not seen their usual flow of migrant farmhands from states such as Bihar. The short supply has in turn led to an increase in wage levels, making labour expensive. As a result, many farm owners have had to turn to mechanization to fill the labour gap. It should be pointed out that sales of tractors have gone up to 402,608 units in 2010 from 227,637 units in 2004-05, when the rural jobs scheme was first implemented. In addition, higher minimum support prices for farm produce have also made tractors more affordable.

This is, in theory, a good thing. Mechanization can lead to greater productivity, and set in motion a whole range of other beneficent outcomes. But it is important to add a caveat here: For tractors to yield positive returns, the size of the farmland is a crucial factor. Indeed, for many smallholders, labour would still be cheaper than the combined acquisition, maintenance and power costs of tractors. The above scenario would then be applicable only to certain farms that meet a set of physical and economic criteria.

Besides, this should not be a reason to gloss over other aspects of MGNREGS. By tying labourers to petty construction work, the scheme seriously stymies skill development; by restricting the incentives for them to move across physical and employment geographies, it limits a crucial transition of labour to more productive jobs. Combined, these eat away much of the potential gains from mechanized farming. And while tractor makers reap the benefits, the economic potential of India’s labour market remains trapped.

What other outcomes can MGNREGS have? Tell us at views@livemint.com