Rural wage growth down: Could reduced MGNREGS spend be a reason?

Reserve Bank of India (RBI) has come out with a working paper – Analytics of Food Inflation in India that substantiates that a rise in food inflation primarily comes with hike in rural wages. As per the last figures released by the government, food inflation has come down substantially. Also, growth in rural wages too saw a decline. Mint

Tapering rural wages

Tapering rural wages

The question here is: Did lower rural wage growth lead to fall in food inflation?

But, why did rural wages see decline in growth?

As Mint points out: Is it all due to cut in the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS)?

Going by the official numbers, in FY15 lower number of households found work under the scheme. In addition, budgeted outlay for the scheme has also witnessed a fall since FY12.

Mint

Relationship between MSP, rura wages, MGNREGS

Relationship between MSP, rura wages, MGNREGS

quotes Gaurav Kapur, senior economist with RBS at Mumbai: “Before NREGA becoming a national-level scheme, rural wages showed a closer correlation with the MSP changes.”

The graph also puts the co-relation between food inflation, outlay for MGNREGA and Minimum Support Price (MSP).

As per the graph, for example, in FY07-08, average rural wage increased from 5.71 per cent in previous year to around 8 per cent in the next year.

Also, in the next year, the MSP of rice and wheat were raised by 28.4% and 17.6%, respectively. In the year FY08-09, budgeted outlay for the scheme doubled as it became a national scheme and this saw wage rising to 20 per cent by FY11-12. However, since then central governments – past and present – are forced to cut down on expenditures to curb rising fiscal deficit and this led to lower allocation of funds for scheme hence reversing the trend. Even MSP rises have been very marginal.

Therefore, lowering food inflation can be attributed to lower outlay for MGNREGA. While fall in food inflation is good for the economy, companies are facing the pinch as they have nothing much to sell to the drying infrastructure and construction projects in the rural sector. Aso, job opportunities have once again shrunk for the people in rural India.

Ashish Pandey

I am a business and finance journalist who is currently employed at Financial Express and previously at Zee News. My areas of interest include business and foreign policy. You can reach me on Twitter at @ashuvirgo1984 or @eFundsPlus.

You may also like...