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Unless there is a slip between the cup and the lip, the wage component of the Rs 40,000 crore that the UPA spends on the rural employment guarantee programme (egp), would increase the consumption of the poorest 40 per cent by about 12 per cent.
Of course this programme can at best lead to a one-time hike in consumption, no matter how long it continues, but it does create a market-tightening incremental demand for labour in perpetuity.
This is why people have been blaming (or praising) the programme (according to their inclinations) for bringing about large wage increases in rural India, and the downstream ‘non-availability' of labour for farms, industries and construction.
Limited support
But figures for the eleven states that accounted for 80 per cent of the 2.15 billion person days of egp employment in FY 2010-11 (peaking at around 9.5 million persons in May and June 2010), provide only limited empirical support.
According to Labour Bureau data, market wages increased little in Rajasthan, which had the highest ratio of peak employment to rural labour force (21 per cent). Though the next two states, Andhra Pradesh and Tamil Nadu (with 17 and 13 per cent), scored high on market wage increase, the highest scorer was Orissa (with an egp peak of just six per cent, and high documented slippages to boot).
Rise in consumption
But causality is a secondary issue. The main point is that rising market wages ought to have joined hands with the egp to bring about a large increase in the consumption of the poor.
And, in fact, this is just what happened. Consumption of the poorest 40 per cent rose at an impressive compounded rate of 10.8 per cent a year between 2005 and 2010.
But the poor were unable to hold on to these gains because of rising prices.
The compounded annual rate of inflation between 2005 and 2010, as measured by the consumer price index for agricultural labourers, was a hefty 640 basis points higher than the rate in the preceding five-year period.
So in the end, real point to point gains over the five-year period were just 10.5 per cent; lower than the gains that ought to have accrued on the basis of egp payouts alone.
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