A Most Puzzling Chart

https://twitter.com/Roshanjnu/status/1699639923022999821/photo/1

That chart is from an excellent Twitter thread by Roshan Kishore, Data and Political Economy Editor at the Hindustan Times. Such an excellent thread, in fact, that I finally succumbed and subscribed to the Hindustan Times, in order to read it in full. (Only to find out, I cannot resist adding, that some articles can only be accessed on the HT app, and not on the desktop. Including, of course, this one. Pah.)

But Roshan has been kind enough to share most of the article as a twitter thread, which can be accessed here.

Take a look at the third chart from the first part of Roshan’s (and Abhishek Jha’s) two-part series. MNREGA raised rural wages, which ought to be a good thing, and which arguably even was a contributing factor behind the UPA winning 2009. So what went wrong after 2009? This third chart points towards at least part of the answer:

https://twitter.com/Roshanjnu/status/1699639945135378871/photo/1

But what does “bound to have put pressure on farmer’s margins” mean in practice?

Here’s a really old article from the Times of India:

https://timesofindia.indiatimes.com/india/migrant-workers-trigger-labour-pains-in-punjab/articleshow/3143443.cms

NREGA raised incomes for the very poorest rural households in this country, but you could argue that this was at the cost of hitting the margins of the not-quite-as-poor-but-still-quite-poor. Similarly, margins for “small entrepreneurs employing urban blue-collar workers” would also be hit, since wages for jobs such as these would now have to work off a floor price established by NREGA. In plain simple English, if you wish to hire a blue collar worker, you must pay the worker at least as much as what the worker would get via NREGA, plus transport and adjustment costs.

And then the story gets worse, if you are in charge of UPA-II. You have strong growth post the aftermath of the 2008 crisis, you have a two year episode in which food prices are on the rise globally, and you have lower margins for small farmers and small town entrepreneurs. Which means that you have conditions that are ripe for a wage-price spiral. Which is exactly what happened, of course:


You’ll often get questions like this in class – “Is NREGA good for India or not?”. Roshan and Abhishek’s article is, in a sense, an answer to this question.

Because I would answer such a question by asking another in return: “Good for whom?”

  1. Good for the truly poor in India
  2. Not so good for the marginally less poor in India
  3. Good for the UPA during the 2009 elections
  4. Bad for the UPA during the 2014 elections (and vice-versa for the NDA in case of pts. 3. & 4.)
  5. Not all that good for India as a whole, because we now seem to have:
    • stagnant rural wages once again,
    • lower share of agricultural income going to farmers
    • an inability to implement much needed agricultural reforms

Causality is a tricky little beast. I do not mean to suggest that all of this is because of MNREGA, or because of the National Food Security Act. Both of these are part of the story, and so is their timing. The UPA (I&II) government, the NDA government (2014 and 2019) are also part of the story, as are so many other things. That’s the good and the bad news about being a student of the political economy – it’s a very fascinating and a very complex subject.

But my own answer to the question “Is MNREGA good for India?” is a very definitive “Yes”. But hey, there ain’t no such thing as a free lunch, and as with everything else in life, so also with NREGA. It has its costs, and those have been (and are being) borne by many different entities. As I said, it is complicated.


So where do we go from here?

I would like to write more about this, but that must necessarily be another blogpost. For now, I look forward to your answers!

My thanks to Mihir Mahajan for sharing this excellent Twitter thread with me, and for some very helpful discussions.