Calcutta Notebook


The Government wants to increase the incomes of the farmers in five years. Towards this objective it is proposed to increase the Minimum Support Price (MSP) of major crops to 1.5 times the cost of production. Indeed, this will lead to a substantial increase in incomes of the farmers. However, it will also lead to excess production of the supported crops. The farmers will reap good profits in the cultivation of the crops and sow more of these crops. The consumption of these crops say, wheat, in the country, however, will remain unchanged. India faced precisely such a situation a few years ago. The Food Corporation of India had purchased large amounts of wheat that could not be sold and started rotting in its godowns. At that time the Supreme Court had asked why the excess stocks of grains should not be distributed among the poor instead of letting them rot. At time the Government has also had to embark on exports of agricultural produce such as food grains or sugar to dispose of the excess production. Therefore, the increase in MSP will help increase the incomes of the farmers but people in the end will fall from the frying pan into the fire of excess production.

The second problem facing rural India is the unintended consequences of the Mahatma Gandhi National Rural Employment Guarantee Act (MNREGA). This programme has had a huge positive impact on the incomes of the poorest by providing them up to 100 days of employment. However, this has led to shortage of farm labour for undertaking agricultural operations. Agricultural workers often prefer to stay put in their villages rather than travel to Punjab for undertaking agricultural operations because they get certain numbers of days of assured employment at home. The works undertaken under MNREGA are often unproductive. Check dams have been made in this writer's village in Uttarakhand that have got filled with mud in a few months. Village roads are repaired by earthen works but they fall into their earlier dilapidated condition in one monsoon season. Thus MNREGA shifts labour from productive farm operations to unproductive works. The combined impact of reduction of productive farm labour and making of less productive social assets is that the net impact of MNREGA on the incomes of the poor people is negligible. A study undertaken by George Washington University of the United States has found that the net impact of MNREGA on the poverty rate was only 1 percent against the expected 12 percent.

Another problem with MNREGA is that of corruption. Large numbers of stories are available that tell of officials taking bribes in the purchase of materials and village headmen often give employment to their family members and kin instead of the poorest in the village. Even CBI inquiries have been instituted in some cases.

The present NDA Government has made a fundamental change in the design of MNREGA which is welcome. Previously only public works like making of check dams and deepening of public ponds were allowed. Now the Government has allowed a number of private works such as deepening of personal fish ponds, putting tin sheds over livestock enclosures, making of personal toilets, and deepening of wells. The expanded list of works allowed to be undertaken has been expanded to 155 items. Allowing undertaking of private works is welcome. By undertaking these works on his own land, the farmer not only works with full interest, but the assets created are also useful and maintained, unlike the dysfunctional check dams. The Government has also started geo-tagging of the assets created under MNREGA. However, such well-intentioned measures will not succeed in preventing corruption in MNREGA. It is reported that the Ministry of Rural Development is engaged in consolidating the 1039 circulars issued over the last 10 years. That is 100 circu-lars every year. This gives a glimpse of the bureaucratic maze in which MNREGA is entangled today.

The Government is today faced with twin problems of the challenge to double the incomes of the farmers without leading to excess production; and the challenge of managing corruption in MNREGA. Both these problems could possibly be solved if the Government takes one step further. The Government has already allowed certain specified private works such as making fish ponds to be undertaken under MNREGA. This list could be expanded to allow all types of private agricultural works. For example, wages of the agricultural labour can be paid from MNREGA if a farmer has to undertake weeding of his vegetable crop or he has to irrigate his wheat crop. The wages paid under MNREGA will be a net income for the farmer. He had to undertake these operations and pay the wages to the farm worker anyway. Now, the wages will be paid by MNREGA instead of him paying the same. The amount received will be a net income for him. The cost of production of the farmer will be reduced. His income will increase by the amount of monies received under MNREGA. This will assist the Government in increasing the incomes of the farmers without leading to an excessive increase in production. At the same time there will take place no waste of the nation's energy in undertaking dysfunctional works under MNREGA.

One problem is that many farm workers who get benefited under MNREGA do not own land themselves. Therefore, they cannot undertake private works such as making fish ponds on their own lands. This problem can be overcome if it is provided that a person can work on the farm land of another farmer and claim benefits under MNREGA. Farmers will then be able to employ labour which is paid for by the Government.

The present policy of Modi government trying to increase the incomes of the farmers by increasing the Minimum Support Price of certain crops is destined to fail because of the excess production that will come in the wake of it. The administrative problems in the implementation of MNREGA are also difficult to handle. The solution is to free MNREGA from the list of 155 works presently allowed to be undertaken under MNREGA and allow the undertaking of private farm operations. This will lead to an increase in the farmers' incomes and poverty alleviation, rid the country of corruption in the scheme, and redirect nation's energies in a productive direction.

[Formerly Professor of Economics at IIM Bengaluru]

Vol. 50, No.44, May 06 - 12, 2018