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I have always maintained that the Mahatma Gandhi National Rural Employment Guarantee Act (MNREGA) is evil. Its evil both philosophically and by intent. It was sold as a scheme to create productive job opportunities for rural labor during the non-farming season and was supposed to be active in districts with acute unemployment problems. However, it has morphed into a major boondoggle.
I blame NREGA on our persistently high inflation and our seeming inability to grasp that unproductive transfer payments always end in tears for the tax payers. And now, Morgan Stanley concurs:
This program has had an adverse impact on domestic inflation for three reasons:
- it discouraged workers to go to farms;
- local governments that did not have the administrative setup to run this program ended up transferring payouts to workers without getting the full productive utilization of the workers’ time; and
- those receiving these transfers ended up spending more on food (particularly protein items), since this represents a large proportion of their consumption basket.
Labour Bureau statistics indicate that, over the last three years, agricultural wages in India have risen by a cumulative 105%, compared with nominal GDP growth of 64% in the agriculture sector.
So the rural farm sector sees an unproductive increase in wages while the urban labor productivity weakens due to global economic slowdown and purchasing power decreases due to the Reserve Bank hiking rates 13 times in a row!
I call NREGA evil precisely because it prevents the movement of labor from unproductive sectors to productive ones. If the goal is to keep the poor unproductive and to pull down the lower middle classes back into poverty, then NREGA has been an unprecedented success. When will this madness end?
