Minimum Wages Issue in MGNREGA

In April 2016, the government shelved the idea of changing the wage calculation formula for MGNREGA; however, it increased the wages by about 6% for 2016-17. Here is a discussion on the basic issues around MGNREGA wages.

What is MGNREGA?

Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), notified on September 07, 2005 guarantees 100 days of work to every rural household whose adult members volunteer to do unskilled manual work. Currently, this scheme covers entire country except few districts which have 100% urban population. More than 65% of the work done under MGNREGA are linked to agriculture and allied activities.

How MGNREGA Wages are fixed?

MGNREGA wage rates are fixed by central government {Rural Development Ministry} as per provisions of Section 6 (1) of the NREGA act which says: “Notwithstanding anything contained in the Minimum Wages Act, 1948 (11 of 1948), the Central Government may, by notification, specify the wage rate for the purpose  of this Act”. However, the rates differ widely from state to state. The wages are revised for each state by indexing them to CPI-AL currently.

What are the Issues around MGNREGA Wage Rates?

There are two major issues with this arrangement. Firstly, while the minimum wages are fixed by the states, NREGA wages are fixed by Central Government; this creates a conflict because these wages are below minimum wages in many states. So, states demand that central government should fix the wages above their minimum wages. But since, any such increase would put financial pressure on the centre; this has become a centre-state tussle for last few years.

Secondly, the Centre has linked the wage rates to CPI-AL. However, it is thought that this index does not provide a comprehensive picture of inflation in rural areas. To explore if this index is really suitable or not suitable for revising MGNRGA wages every year, the government had set up seven member committee led by S. Mahendra Dev. The committee recommended {in July 2014} that instead of CPI-AL, the MGNREGA wages should be linked to CPI-Rural and must be revised every year on the basis of increase or decrease in CPI-Rural. In its recommendations, the committee gave following rationales:

  • CPI-Rural is a more recent {uses base year 2010-11} and wider index in comparison to CPI-AL.
  • CPI-Rural index is a better representative of rural households and will protect workers from inflation as it takes in to account the changes in prices for the entire rural population of the country.
  • The switchover to CPI-Rural will make MGNREGA wages more relevant.

We note here that there are three wage indices in the country viz. CPI-AL, CPI-RL {Rural Labourers} and CPI-R {Rural}. While CPI-AL and CPI-RL are computed by Labour Bureau {Ministry of Labor}, the CPI-R is computed by CSO under MPOPSI.

However, this recommendation to link MGNREGA wage rates to CPI-R was put on hold to study the recommendation and their implications in further details.

What is the recent government decision towards this?

As of now, the government has increased the wages by about 6% for 2016-17. However, both the issues remain as they are. Some states are discontented because despite this hike, the MGNREGA wages remain well below their minimum wages; and this scheme becomes unattractive. Currently, highest wages are given in Haryana {Rs. 259} followed by Chandigarh {Rs. 248}, while lowest wage rates are given out in Bihar, Jharkhand and Madhya Pradesh. Currently, the total allocation for the scheme has been increased by 4% amounting to Rs. 38,500 crore for 2016-17.

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