We need reforms to raise farm productivity

Adiscussion paper from the Commission for Agricultural Costs and Prices (CACP) shows that growth boosts rural wages much more than schemes such as the MNREGA. This is not surprising, but yet to guide public policy. MNREGA is essentially a dole and manual work comes in as a means of self-selection. True, the scheme does put some pressure on farm wages, but higher wages without acommensurate increase in farm productivity will only drive up food prices. It would help to use MNREGA to improve skills and physical infrastructure.

CACP’s analysis of data from 16 states from 1991-92 to 2011-12 finds that real wages respond strongly to overall GDP growth, even more robustly to growth of agriculture and most responsively to value added in construction, which sector draws labour away from agriculture, resulting in a shortage and therefore pushing up wages. It is also broadly in sync with the experience of other countries. The findings show that the impact of MNREGA is positive for wages but less forceful than growth variables. A disaggregated analysis reveals the MNREGA’s impact is relatively higher — but still more dilute than the effect of overall economic growth — in Andhra Pradesh, Tamil Nadu, Rajasthan, Assam and West Bengal. The scheme’s impact is not significant in many large, poor states, including Uttar Pradesh, Bihar, Maharashtra and Odisha. Gujarat and Haryana show slow growth of rural wages despite buoyant GDP and farm growth, and that is confusing.

The larger point is that the country needs to raise lagging farm productivity, and reform is the only way out. Public investment in rural infrastructure must be stepped up to raise farm yields. Rural power and better rural roads would give farm storage and transport a big boost, incentivising farmers to boost yields. Using MNREGA to train workers, besides building check dams, is a good idea. Clearly, the Rs 2 lakh crore spent on MNREGA could have been used better.