Sticky wages

The government’s decision to link the wages paid under the National Rural Employment Guarantee Scheme (NREGS) to inflation is the second best option, after it rejected the demand to pay statutory minimum wages to workers under the scheme. The demand to pay minimum wages to the workers had been made by UPA chairperson Sonia Gandhi in a letter to Prime Minister Manmohan Singh. It was based on a considered view that emerged in the National Advisory Council. But the prime minister has rejected it, mainly because it would involve much greater expenditure than the government feels it can bear. However, the illegality of the government itself violating the Minimum Wages Act is too obvious to be missed. The argument that minimum wages vary from state to state and the Centre has no control over them is not a good enough  reason to deny the right of the worker.

However, the decision to link the wages to the consumer price index will go some length in insulating workers’ wages from the impact of inflation. Ever since the launch of the scheme in 2005 the remuneration has remained fixed at Rs 100. The real value of the wage has eroded over the years and this has affected the appeal and usefulness of the scheme as such. The indexation has come into effect from January 1 and has resulted in increasing workers’ wages by 17 to 30 per cent. The government, at present, spends over Rs 40,000 crore on the scheme and the expenditure will now go up by another Rs 3,500 crore. Fiscal prudence demands that the additional  expenditure be made up through savings or other means.

The flagship programme of the UPA government has helped millions of workers in rural areas to find work for 100 days in a year. It has served as an economic safety net but needs to be implemented better in many parts of the country. Though there are safeguards like mandatory payments through banks or post offices, limits on administrative costs and the need to publish the details of expenditure and works undertaken, there are problems like fudging of records, delayed  payments and wastage of funds. It is also not always ensured that the works undertaken are useful and productive. With improvement in implementation, the new remuneration scheme, which involves revision of wages every year, can ensure that the workers derive full and real benefit from the programme. 

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