High wages for rural jobs under flagship scheme may fuel inflation

NEW DELHI: States such as Rajasthan and Uttar Pradesh have sharply raised the pay for workers under the flagship rural job guarantee scheme in the last one year, making the Union government fear that such populist moves may disrupt the rural economy. The Centre is thinking of limiting the annual pay raise for workers so that there is no sudden surge in income under the largest job guarantee scheme in the world that could keep commodity prices high in rural areas and deprive workforce for projects outside the scheme.

Officials in the ministry of rural development and the ministry of finance say that a sudden rise in wages may keep rural inflation high. An official executing the National Rural Employment Guarantee Scheme (NREGS) said that states such as Rajasthan raised the minimum wage from Rs 70 to Rs 100 in the last one year while some others doubled it during the period.

The latest official data shows that Haryana offers the highest wages under the scheme, Rs 141 for a day���s work, while Kerala offers Rs 125. Gujarat, Himachal Pradesh, Rajasthan, Sikkim and Uttar Pradesh offer Rs 100 against the Rs 65-67 offered by Arunachal Pradesh and Rs 70 offered by Meghalaya and Orissa. ���There is a need to develop a formula for allowing increase in wages, say 5% a year, or a rate linked to the inflation rate,��� said the official, who asked not to be named.

���NREGS is envisaged mainly as a safety net for rural folk when there are no jobs available. The aim is not to pay higher wages and deprive workforce of the normal economic activity in the state,��� said another official involved in executing the scheme. The official said the wage rise under the scheme should be linked to the rate of inflation so that the pay revision helps them to cope with the rising living cost instead of fueling it. States fix wages under the Minimum Wages Act, 1948. The job scheme guarantees 100 days of work to every rural household whose adult members volunteer to work.

Department of economic affairs principal economic adviser Arvind Virmani had earlier pointed out that firm prices in food items may be a result of increase in per capita income in rural areas on account of additional government spending to create more job opportunities. In 2008-09, the government provided Rs 30,000 crore for the scheme, almost double the amount originally allocated in the Budget.

Indicators of cost of living based on retail prices ��� consumer price index for farm laborers (CPI-AL) and rural laborers (CPI-RL) ��� stayed at 10.79% in February, a shade lower than the levels in January although wholesale price-based inflation dropped to 0.44% in the first week of March.

Another mistake that states commit is to fix targets under the scheme. ���It���s not the right approach to set targets for giving jobs. If fewer people sign up for jobs, it could also mean that the normal economic activity in the state itself is meeting job requirements. What is most important is whether the government has been able to provide jobs to everyone who has demanded work,��� the official added, emphasising the need for states to modify the way they implement the scheme.