The Economic Times
12,045.80-67.65
Stock Analysis, IPO, Mutual Funds, Bonds & More

Government working on new index to fix rural wages

The government is working on a new index based on the consumption pattern of rural landless labour to fix wages under MGNREGA.

Last Updated: Sep 11, 2013, 04.35 AM IST
0Comments
Rural wages under MGNREGA are at present based on the consumer price index for agricultural labourers (CPI-AL), which has a base year of 1986-87. The high MGNREGA wages have been often blamed for causing a spike in farm labour wages.
Rural wages under MGNREGA are at present based on the consumer price index for agricultural labourers (CPI-AL), which has a base year of 1986-87. The high MGNREGA wages have been often blamed for causing a spike in farm labour wages.
Tax Calculator
NEW DELHI: The government is working on a new index based on the consumption pattern of rural landless labour to fix wages under the Mahatma Gandhi National Rural Employment Guarantee Act, a move that is set to result in slower annual wage hike increases under the government’s flagship social welfare programme.

Rural wages under MGNREGA are at present based on the consumer price index for agricultural labourers (CPI-AL), which has a base year of 1986-87. The high MGNREGA wages have been often blamed for causing a spike in farm labour wages.

The new index, being developed by Pronab Sen, chairman of National Statistical Organsiation, will be based on consumer price index for rural labourers and will have 2010 as base year.

According to a senior officer in the ministry of rural development, a committee has been constituted to develop a mechanism to evolve a framework that will create a separate index for updating wages under MGNREGA. The officer, however, said that wages based on the new index will be implemented only when the “issue of Mahatma Gandhi National Rural Employment Guarantee Act wages and minimum wages is resolved”.

A parliamentary panel had last month asked the Centre to bring parity between wages under MGNREGA and those given by states for agricultural labour under the Minimum Wages Act.

The CPI-AL indexed wage rates were raised nearly 12% with effect from April 1 this year, which set the maximum wage of Rs 214 (for Haryana) and a minimum of Rs 135 (for northeastern states).

“At the moment, we are using CPI-AL for determining wages under MGNREGA as it is most handy. But it is way outdated as it has a base of 1986-87. Over the past two decades, the consumption basket of rural workers has changed quite dramatically. So, we think, the most sensible way of doing it is to actually use the data we are collecting for CPI rural and re-weight it according to the consumption pattern of rural landless labour,” Sen told ET.

The weights assigned for both the indices are based on the data collated by the 38th round of the National Sample Survey Organisation’s (NSSO) household consumption expenditure survey for 1986-87.

While the weight assigned to food items in the CPI-AL is 69.15%, expenditure on food as a proportion of total household consumption spending fell from 64% in 1987 to 48.6% in 2011-12, according to the latest household consumption expenditure survey by NSSO. Hence, wages indexed on rural consumption pattern may lead to lesser inflation adjustment as the food component in the basket will fall, which has been facing double-digit inflation for quite sometime now.

Food is more volatile in terms of inflation compared with non-food inflation as is visible from the latest inflation trends. Inflation based on CPI-AL stood at 12.8% in July, against CPI rural inflation of 9.14%. CPI rural and urban are released by the Central Statistics Office, under the ministry of statistics and programme implementation, whereas CPI-AL is released by the Labor Bureau in Shimla.

“It is a very progressive idea to move from CPI-AL to CPI rural, as the consumption patterns have changed over the years. This will result in marginal slowdown in the rate of wage increase. However, in some years, we must move from CPI rural to urban for MGNREGA wages,” said Madan Sabnavis, chief economist at CARE Ratings.
Comments
Add Your Comments
Commenting feature is disabled in your country/region.

Other useful Links


Copyright © 2020 Bennett, Coleman & Co. Ltd. All rights reserved. For reprint rights: Times Syndication Service