Investment in a scheme that guarantees rural employment with minimum wages should be seen as complementary and not alternative to development activities

A recent paper by the Commission for Agricultural Costs and Prices (CACP) has argued that the “push” factors of the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) are not as important as the economic growth “pull” factors, for increasing agricultural wages. The paper has received wide media attention and provided intellectual fodder to the usual anti-MGNREGA commentators. However, the conclusions of the analysis could well be misleading and in other instances, be stating the obvious.

First, the fact that MGNREGA has reversed the stagnation of agricultural wages of the early 2000s is well established by data and research, including that of CACP. An analysis by Jean Drèze observes that the pre-MGNREGA (2000–1 to 2005-6) growth rate of real agricultural wages was around 0.1 per cent per year for men and negative for women. After the implementation of MGNREGA (2005-6 to 2010-11), the growth rate for agricultural wages for men increased to 2.7 per cent per year and for women to 3.7 per cent per year.

Second, it is clear that investments in MGNREGA and agricultural growth and economic activities like construction, are not mutually exclusive. In other words, the importance of growth for development cannot be undermined and this should be viewed as being complementary, not alternative, to a social security scheme like MGNREGA.

Methodology

That said, there are also concerns with regard to the methodology and the interpretation of the results of CACP’s paper. MGNREGA self-targets itself to low wage areas and the correlation between MGNREGA employment (the primary variable in the analysis) and agricultural minimum wages is likely to be negative even if MGNREGA has had a substantial upward effect on wages. Thus, CACP’s econometric model in the paper is simply not correct. Further, the legal agricultural minimum wages, used in the analysis, are not accurate reflections of the prevailing agricultural wages in several areas across the country. There are variations within States and wages tend to be higher in regions that are relatively developed due to factors such as better agro-climatic conditions, infrastructure facilities, and the availability of alternative employment. Once again, this substantiates the self-targeting claim of MGNREGA to less developed areas.

The CACP analysis also does not include district, time, seasonality and rainfall effects. On this account, results from research done by Oxford University, including a panel of 249 districts across 19 Indian States from a period of 2000-2011 appear more robust.

The analysis found that each annual person-day of employment generated by MGNREGA in a district increases real daily agricultural wage rates by 1.6 per cent in that district. On an average, MGNREGA boosts real daily agricultural wage rates by 5.3 per cent. The wage increase is true both for males and females and remains significant even after controlling for rainfall, district and time fixed effects, and phase-wise time trends. The research also indicates that MGNREGA mainly affects unskilled wages.

There is also an evident contradiction in CACP’s criticism of MGNREGA that suggests that though MGNREGA has not significantly impacted agricultural wages, it is responsible for an increase in labour costs and diversion of labour.

Welfare benefits

It is also important to note the findings of other studies on the topic. According to an analysis by the Paris School of Economics in 2011, MGNREGA also leads to an increase in private sector wages and has welfare benefits for non-participating households. The gains from the rise in wages are more for the poor and marginalised, including women. The National Sample Survey Office confirms that MGNREGA has reduced the traditional gender wage discrimination which was apparent in several States across the country. A study undertaken by the Ministry of Agriculture in 2010-11 also supported the fact that actual average wages under MGNREGA are higher than average wages in other types of public work and agricultural casual work.

MGNREGA also has enormous potential to boost agricultural growth. It has allowed the people in rural areas to undertake activities like desilting, pond excavation, etc in their own villages and on their own land, to increase water availability, soil fertility and develop land. A recent study of four States by the Indian Institute of Science (IISc) found that MGNREGA works have increased the area irrigated, soil fertility and contributed to an increase in crop yields in the range of 46 per cent to 100 per cent across districts. Also, as per the study, due to land development under MGNREGA, previously uncultivable land has now been brought under cultivation. In Andhra Pradesh, the increase has been estimated to be by as much as 10-15 per cent.

MGNREGA also has a positive impact in creating sustainable livelihoods for individual beneficiary households. As per a study conducted by Sambodhi, a research organisation, in six States, almost 85 per cent of the farmers have reported an improvement in land quality after the creation of MGNREGA assets. In the same sample, 11 per cent and 12 per cent of beneficiaries have also started horticulture and sowing of additional crops on their land.

Evidently, both MGNREGA and agricultural growth have a significant role to play in increasing agricultural wages and in rural development.

While MGNREGA is a definite source of income for small and marginal farmers and marginalised households across the country, its synergy with agriculture is unexploited in parts and needs to be further strengthened. The ultimate aim of MGNREGA is undoubtedly to allow for reductions in its own allocations in a way that the landed and landless labourers become self-sufficient and move back to farming on their own land or on to other more lucrative livelihood opportunities.

(Neelakshi Mann and Jairam Ramesh are in the Union Ministry of Rural Development.)

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