Higher NREGS wages may hurt farm sector

With the National Rural Employment Guarantee Scheme yielding a good harvest of rural votes in the recent general elections, Finance Minister Pranab Mukherjee announced that the scheme will now guarantee a minimum daily wage of Rs 100 to each beneficiary.

Accordingly, proposed allocation for the rural job scheme has been raised 144 per cent to Rs 39,100 crore (Rs 391 billion) in 2009-10. The government had spent Rs 30,100 crore on the scheme in 2008-09 (revised estimates) which provided work to 44.7 million households. At the moment, the scheme provides for a minimum daily wage of Rs 60, though states are free to stipulate a higher amount.

This set alarm bells ringing in the agricultural sector as it is certain to push up wages paid by farmers to casual workers. Farm experts said that this would aggravate the shortage of workers in farms as they would opt for work under the scheme. Large farmers in Punjab as well as large industrial clusters have faced a labour shortage in the last couple of years after the implementation of NREGS in Bihar and Uttar Pradesh.

Experts also said that small and marginal farmers are expected to give up farming because of this, which could impact farm production adversely. Some states like Haryana, Punjab and Kerala are already paying more than Rs 100 to NREGS workers. In fact, higher wages for NREGS in Punjab has lured workers from agricultural fields there. 

Rajakutty, director and professor at the Gujarat-based National Institute of Rural Development which comes under the Rural Development Ministry, said: "This is going to be bad for farming. Unless agricultural work is included in NREGS, there will be nobody left to work in the fields as people have already begun to go to the NREGS work sites rather than the fields."

The 2009-10 Budget also said that the scheme would a try to merge itself with other social sector schemes involving farming, land resources and rural roads. The Government has selected 115 pilot districts for implementing this convergence in the first phase, Mukherjee said in his budget speech. However, it was not clear which schemes are to be converged with NREGS. "We will have to see the proposal in full to know the full implication of today's announcement," Rajakutty told Business Standard. 

The scheme which provides 100 days of work to every rural household, including those who are not below the poverty line, had seen allocations go up last fiscal, especially when additional sums were given as part of the stimulus package to fight economic slowdown.

While the allocation in the 2008-09 Budget for the scheme was Rs 16,000 crore (Rs 160 billion), it almost doubled in the revised estimate to Rs 30,100 crore (Rs 301 billion) following the additional funds released in the stimulus package. The amount was repeated in the interim budget presented in February this year.

The scheme has stimulated rural demand for products like cement, steel and fast-moving consumer goods as well as services like mobile telecommunication services and direct-to-home television.