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With the benefits of Food Security Bill failing to kick in, government is back to playing the card which many claim helped it win the previous election. It is looking to make a substantial hike in wages under the Mahatma Gandhi National Rural Employment Guarantee Act (NREGA), according to a latest report by Economic times.
A panel headed by National Statistical Commission Chairman Pronab Sen has been scrapped by the rural development ministry headed by Jairam Ramesh which was supposed to look into hiking the wages under NREGA. The ministry is not happy with the formula suggested by the panel as it would have given only a small hike to those availing the scheme. It instead wants to prepare a new index that would lead to a more generous wage revision.
Why does the government even pretend that it is fighting inflation when it is doling out such schemes which will not only raise prices across the board but also affect the labour market? There have been enough reports and study done on the negative impact of NREGA on the labour market both in the industrial and agriculture sector. Along with the rise in wages, NREGA has been blamed for non-availability of labour across sectors. The benefit of NREGA in asset and infrastructure creation is debatable. Leakages and pilferages of NREGA have led many to talk about the utility of such a scheme. Rather than scrapping a scheme which increases corruption and disrupts the labour market, government is promoting it which can only be disastrous in the long run.
Once such schemes are launched it is difficult to roll it back. Political parties cutting across party lines have tried to exploit the scheme in the states where they are in power. Fiscal prudence is the biggest casualty with such schemes.
We have the finance minister and central bank governor complaining about the stickiness of inflation, both food and non-food. On the other side, we have another arm of the government giving away doles as though its life depends on it. Well it does. NREGA is the only instrument the government feels that can help it come to power. It had put its bet on another populist scheme to be launched under the Food Security Bill, but thankfully for the economy, government’s infrastructure to roll out the scheme is not ready.
Increasing NREGA wage bill serves dual benefit for the Congress. If it works, it has chances of coming back to power. If it does not, it can cripple the economy to such a level that the new government will take years to repair it and turn the economy around without causing social unrest. The Congress can then use this as an excuse for highlighting the non-performance of the new government. Raising pension paid under social welfare schemes, increasing the deficit through the food security bill and a freeze on government spending are some of the acts that will push the economy back by years. Congress is destroying its own bridges that it claims to have built, while it is retreating.
The bill for rebuilding them will be a big one. High inflation and high interest rates are here to stay
