Tag Archives: Ashok Kotwal

Debating MNREGA!

25 Tuesday Nov 2014

Posted by in economics and governance, politcal economy

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In an article in support of Mr. Modi’s decision to limit MNREGA to only 200 poorest districts, Bhagwati and Panagariya  argue the following:

To appreciate fully how inefficient NREGA is at transferring income to the poor, consider the following. Existing data show that on average 30% of NREGA expenditures are incurred on materials and 70% on wages. Assuming daily NREGA wage to be Rs 130, this requires an expenditure of Rs 186 to employ one worker per day.

But not all Rs 130 in wages amount to transfer. When accepting NREGA employment, the worker forgoes the opportunity to work elsewhere. Even assuming daily market wage to be a low Rs 80, net transfer under NREGA is only Rs 50. So we spend a solid Rs 186 to transfer a mere Rs 50.

Even though the opportunity cost argument might sound logical prima facie it may not hold much water when confronted with reality. In absence of productive work, the opportunity cost for the rural labor could be in fact zero. In that case the transfer is the total Rs. 130. So it really boils down to the number one chooses or the wage rate and probability of finding work the actual worker faces!

Secondly, as argued by Kotwal and Sen, the wage rate offered by MNREGA may have served as a reference rate for determining the market wage rate as demanders and suppliers of agricultural labor internalize this opportunity cost. So most likely, the opportunity cost logic works from MNREGA to the market for agricultural labor and not other way round. Dili Abreu et. al provide a more balanced critic of MGNREGA that is worth reading in this context.

Unemployment, Poverty Decline, and Inflation.

19 Monday Aug 2013

Posted by in growth, macroeconomics, Unemployment

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India is quite notorious when it comes to availability of timely and quality data and when it comes to unemployment more so. Till recently, the NSSO conducted the employment-unemployment survey only every five years. The reasons might be many- lack of funding, tailoring the survey dates to five year plans, using it as a report card on government in office, etc. But given that unemployment is an important macroeconomic indicator, you would want it to be available at a much higher frequency. Thankfully, the government seems to have woken up to this reality. Thanks to the Labor Bureau from Ministry of Labor and Employment, we now have an annual survey on employment and unemployment starting from the year 2009-10! You can access the reports here.

Given this late start, we have two rounds of this survey till now. How does the picture look like? In the following table, I have collected data from two rounds for unemployment rate based on the usual status. Note that Unemployment Rate (UR) is defined as the number of persons unemployed per 1000 persons in the labour force (employed & unemployed). The usual principal status approach means asking the question about employment situation in the past 365 days. Accordingly, the major time spent by a person (183 days or more) is used to determine whether the person is in the labour force or out of labour force. A person found unemployed under this approach reflects the chronic unemployment (Labor Bureau 2010).

unempInd

Overall in past two years, unemployment declined from 9.4% to 3.8% and most of this decline seems to be coming from decline in rural unemployment; rural unemployment declined by 66% as against 33% decline in urban unemployment with the total decline in unemployment being 60%. This decline in total unemployment because of a relatively higher decline in rural unemployment may be behind the recent decline in poverty. In a recent article, Kotwal and Sen argue that this poverty decline might be because of the success of Mahatma Gandhi National Rural Employment Guarantee Scheme (MNREGA) and Pradhan Mantri Gram Sadak Yojana (PMGSY). This is not only because of improved employment opportunities from the scheme but also that the offered wage under the schemes pushed the rural wage up ensuring improved terms of trade for agriculture. So the decline in poverty story seems to be going hand in hand with the phenomenal decline in rural unemployment. 

It might be tempting to put the blame for higher inflation on increased government spending under the above mentioned schemes, but the causality does not seem to be that clear. The increase in the rural wage and the beneficial effects of better rural roads may have opposite effects on inflation. We will have to wait for more research on these links as data becomes available.

References:

Labour Bureau (2010), Report on Employment- Unemployment Surveys 2009-2010, Ministry of Labour and Employment, Government of India.

Labour Bureau (2012), Report on Employment- Unemployment Surveys 2011-2012, Ministry of Labour and Employment, Government of India.