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Should the rural job guarantee scheme be linked to minimum wages?

Business Standard  |  New Delhi 

The question raises fundamental issues about the MGNREGA’s centralised template and poor delivery mechanism, but it is important to provide a legal basis to its wage structure to protect it against inflation.

Bibek DebroyBibek Debroy
Centre for Policy Research

We need to remember that the way the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) was originally conceived, wages were never meant to be equal to the minimum wages; they should have been lower. This is because the is not meant to be a job guarantee scheme in the classical sense, it is meant for people who do not temporarily have any other job.

In this context, the other important issue is that there is a great deal of variation in wage rates across the country and the minimum wage also varies across the states — as they should. There are states where the market rate is actually higher than the minimum wages and there are states where it is lower. So there are big questions of whether we should have a system of minimum wages at all or not, whether it serves any purpose. But the pertinent issue to this debate is that we cannot and should not decree a national-level minimum wage. This is a fundamental issue that goes beyond the minimum wages debate. The reason this is pertinent is that in the MGNREGA, we have a central template. The moment we accept that wages should be linked to minimum wages, we also need to accept that these wages can no longer be centrally determined — whether it should be Rs 100 or Rs X a day. In fact, this issue has also cropped up in the recent debate on inflation-indexing because the (CPI-AL) also varies from state to state. So more fundamentally, assuming we need a rural employment guarantee scheme, we need to consider whether we need a more central template and that also has implications for what you can and cannot do.

The other point to be considered is that the is already distorting the labour market. The way it has been constructed, it was probably deliberately intended to do so. But let me flag something else: the issue is not whether it is Rs 100 a day on paper or whatever it is going to be now. The problem is that there are huge delivery issues with this scheme. There are studies that show even if the wage is Rs 100 on paper, on average people are getting paid Rs 45 because the scheme has not been able to weed out the system of middlemen. So much more relevant to whether the should be linked to the CPI-AL or minimum wages is a debate on the delivery mechanism. Sure, we have said payments will henceforth be made only through post offices and savings bank accounts, but we do know that there are villages where the nearest post office or bank branch is miles away. The Reserve Bank of India has a financial inclusion agenda that says India will have a bank branch in every village with a population of more than 2,000. But there are probably 200,000 villages or more with a population less than this.

Overall, I think the more constructive debate would not be this one, but how we improve the delivery mechanism, to ensure that we can deviate from the centralised template so that we can tailor the to local conditions and use it to create, in some sense, productive assets. Given the present structure in terms of wages and materials, it cannot really be used in this way. If you consider, say, something like water harvesting, there are many options. Right now, the central template says you can construct a check dam or dig a well; now, whether these are relevant or whether something else – like de-siltation – is relevant is a function of local conditions, so the central template should allow for this. I also think the central menu should have enough flexibility to use the scheme to create human capital. Suppose, for example, I want to opt for some short-duration training and I need a stipend. If you said let me use the scheme to part-fund that stipend, why should the not have the flexibility to allow that?

As told to Business Standard

Aruna RoyAruna Roy

Mazdoor Kisan
Shakti Sangathan

The minimum wage issue encompasses two fundamental considerations: linking minimum wages to inflation and paying minimum wages under the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA). That minimum wages must be paid under the cannot be questioned. In 1948 India passed the Minimum Wages Act, which categorically stated that no worker could be paid less than the statutory minimum wage for a day’s work. The norm related to the barest minimum for a family to survive. The Supreme Court has ruled that compromise on minimum wages is unacceptable and that no public works programme can pay less than the statutory minimum wage. Paying less would amount to forced labour and a violation of workers’ fundamental rights. wages are currently below the minimum wage in at least 19 states and the Government of India is in contempt in the Andhra Pradesh High Court in a PIL filed by workers.

But why does paying the barest minimum in the raise such fears? The has been an important, if tattered, bit of protection that the unorganised sector has retained as a fallback to fight exploitation. The made minimum wages tangible, increased the bargaining power of workers and offered a benchmark to fight severely depressed wages. Recognised for providing work, though this varies from state to state, the has also been the single-most effective state intervention in the wage market. The whining and complaining about costs to industry, big farmers and the lack of availability of cheap migratory labour is proof that the has partially succeeded.

This also explains this sudden attack on minimum wages, and an attempt to dilute it at all costs so that inflation drowns out its protective cover. We are not willing to make essential correctives in the agricultural policy, but want cheap labour to subsidise the crisis in this sector. The government as employer pleads financial constraints while justifying non-payment of wages under the MGNREGA, but provides for the commonwealth of corrupt practices. The most appalling aspect is the brazen role of the state in undermining the fundamental rights of its poorest citizens. The only way to protect the standard of a minimum wage from the cannibalistic effects of inflation is to index the wage. In fact, the rational and effectively implemented minimum wages is also good macroeconomic policy and explains how and why rural India has dealt better with the economic downturn, and the drought. The was often cited as a source of maintaining levels of consumption in rural areas which played a role in stimulating the rural supply chain. Now, because of extraordinary levels of food inflation, workers are demanding that the wage be indexed.

Platitudes like “growth with a human face”, while paying sub-minimum wages to workers, are against basic concerns of the aam aadmi, and proof of the hypocrisy of political promises.

In fact, the government has partly addressed the issue in indexing wages to inflation. But indexing the wage to inflation is a subset of the minimum wage concept and the Act. The only way to protect the minimum wage as prices go up is to index the wage. The very fact that even this took so long to do so is telling. The thought of questioning the dearness allowance of salaried employees never crosses one’s mind. But why then should linking wages to inflation in the have been contested? Compare MPs’ recently tripled emoluments; bureaucrats doubled incomes courtesy the Pay Commission, and raised salaries of the judiciary with the passing of an order!

Thus, to index the wages without the protection of the Minimum Wages Act, is providing immediate succour while removing the fundamental, legal basis for any minimum standard. The implications go far beyond workers. The government will not have any moral authority to implement the when it is itself a defaulter. It also opens the door to any other legislation over-riding the minimum wage and creating conditions of forced labour.

First Published: Wed, January 12 2011. 00:16 IST