As a source of social security, MNREGS has been very successful: Economist Pronab Sen

It is only a coincidence that the Mahatma Gandhi National Rural Employment Guarantee Scheme (MNREGS) schemes completed 10 years at a time when the rural economy in the country is facing an unprecedented crisis, thanks to two back-to-back draught years and slowing rural income. Business Today caught up with Pronab Sen, an economist and Chairman, National Statistical Commission and asked him about the relevance of MNREGS at a time of rural distress. Here are some excerpts from the interview:
 
Q: There are talks about slow income growth in rural India. Why do you think after double-digit growth from 2010 to 2013, income growth has now come down to low single digit?

Sen: Agriculture accounts for roughly about 50 per cent of the rural economy, so if there is an adverse effect on agriculture production, it would affect rural people. The compensating factor, though, is the relative rise in prices of agricultural products. So what you are losing in volume is partly compensated by the relative increase in price.

However, the problem for people involved in non-farming activities is more because they have to pay for the rise in price of agriculture commodities of which food is also an important part. That apart, agriculture itself generates fair amount of employment for these people as well as source of demand for their non-agriculture production such as services, informal manufacturing. So they get hit on both counts.

Now, problem also arises if the price of agriculture products are not allowed to go up. Then what happens is that farmers also get hit due to loss of production and non-compensation.

When agricultural wages were going up in the earlier years (prior to the last year), this was driven by a number of factors. The most important was because of infrastructure development-especially roads and telecom-alternative job opportunities have gone up, so people were less dependent on agriculture.

In addition, you have MNREGS, which essentially provides a bargaining chip to the landless labours. So, if you look at the period from 2004 onwards, what we find is there is a steady agriculture inflation (food inflation is nothing new it is there since 2004), and at the same time you see rural wages growing faster than agriculture prices. So, there was sort of protection to non-farm households because of the rising rural wages.

Now, last year was interesting, we had bad harvest and typically during bad harvest wage rates tend to fall, and they fall simply because there is no demand for labour. Earlier in 2009 (when Monsoon was 22 per cent deficient), the wages didn't fall because of MNREGS.
Last year (2014-15) the rainfall was bad, and MNREGS, for whatever reasons, was simply ineffective, and rural wages started coming down.

Q: What was the reason for MNREGS not being effective last year?
Sen: The answer depends on who you ask the question. The centre and states are pointing fingers at each other. The Centre is saying that states were not serious and the states are blaming the Centre. That's the debate going on between the states and the Centre.

Q: So, you are necessarily saying that MNREGS has been more effective in case of non-farmers?
Sen: It has helped farmers as well. We have seen earlier that after every drought year there were distress sale of lands. However, after the 2009 drought, we did a land survey in 2010-11, and found that the proportion of landless labour actually fell. So, in order to make good of the loss of income due to loss of production, farmers were no longer selling lands, they were instead selling labours. That is one of the very imports effects that people lose sight of.

Q: What about the criticism MNREGS has received with regards to quality of asset creation, etc?
Sen: It depends on how you view it. If you looking at it as an asset creation scheme, yes, it has not been that successful. But if you are looking at it as a source of supplementary income, if you are looking at it as a source of social security,  I think MNREGS has been very successful.
If you look it at from my perspective, I don't care if assets have been created or not, because it has been very successful from income generation perspective.

Look at the drastic fall in poverty rate. That was the purpose of MNREGS. People in rural areas did not have enough income opportunities, and NREGS addressed that issue.

Q: So, it does not matter if assets are created or not
Sen: No, I am not saying that. If on the top of job creation, it leads to asset creation I would say it is icing on the cake. There are parts of the country where good quality assets have been created, and then there are some parts where assets have not been created. But that's an issue of governance, and should we penalise the beneficiaries for the failure of administration?

Q: Do you think falling rural income has impacted the consumption?
Sen: The data that we get is the consumption data of commodities and not location-wise data. So there is no way of distinguishing whether the consumption is rural or urban. Whether or not there has been drop in rural consumption can only be known from the NSSO data which is two years from now.

Q: Do you see any change in the consumption pattern in rural areas in the last couple of years?
Sen: The consumption patterns have changed dramatically prior to 2004. Basically, what has happened that during the course of this period (2004 onwards), agriculture prices rose faster than non-agriculture prices and rural wages grew faster than agriculture prices.
There has been an income redistribution, from the urban to the rural and in the rural areas from the landed to the non-landed. And if you think, that's how the poverty is distributed.

So basically, more income is going to the poorest, who have a high consumption propensity to food. What is interesting, when they get more income they do not increase the food consumption. In India, what we have seen that demand for cereals doesn't rise very much, demand for non-cereals rise faster. So what has been happening in the last 10 year or so, that demand for cereals is growing at roughly the same pace as their production, which is under 2 per cent, but the demand for non-cereals is growing at 4-4.5 per cent.

Q: What has been the role of growth in increasing rural income in the years before 2014-15?
Sen: Growth in itself I don't know, but the rural roads programme and rural telecom penetration has been very  effective. Rural India has taken advantage of the opportunities created by these developments.

As a result, rural India has seen huge diversification of livelihood sources, and the rural people are no longer as dependent on agriculture as they were earlier.