Government to evolve new index to fix rural MGNREGA wages

September 12, 2013

The government is working on a new index based on the consumption pattern of rural landless labour to fix wages under the Mahatma Gandhi National Rural Employment Guarantee Act.

Why the need for a new index for fixing MGNREGA wages?

Currently government uses Consumer Price Index for Agricultural Labourers (CPI-AL) with a base year of 1986-87 to calculate MGNREGA wages. The high MGNREGA wages have been often blamed for causing a hike in farm labour wages. It has been observed that the consumption pattern of the rural laborers have undergone a change and therefore the base year of 1986-87 has become outdated. While the weight assigned to food items in the CPI-AL is 69.15%, expenditure on food as a proportion of total household consumption spending fell from 64% in 1987 to 48.6% in 2011-12, as per the latest household consumption expenditure survey by NSSO. Hence, wages indexed on rural consumption pattern may lead to lesser inflation adjustment as the food component in the basket will decrease, which has been facing double-digit inflation for quite some time now.

What would be the effect of the use of new index for fixing MGNREGA wages?

The new index will incorporate latest rural consumption pattern. As the new consumption pattern shows decrease in the expenditure on food as a proportion of total household consumption, the new wages indexed on rural consumption pattern may lead to lesser inflation adjustment as the food component in the basket will fall, which has been witnessing double-digit inflation. It visible from the latest inflation data that food is more volatile in terms of inflation as compared with non-food inflation.

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