MGNREGA and Agriculture Tax

January 14 2011No Comments

Categorized Under: Current Issues

The government has decided to link wages paid under MGNREGA to inflation. Currently, the wages under this scheme is Rs. 100 per day which may shoot up by 17 to 30 % if linked to inflation. This would mean an increase of expenditure of 3500 Crores.

But the demand by NAC (National Advisory Council) for linking the wages under this act to minimum wages paid by the state government under the Minimum Wages Act was struck down by the government headed by the PM.

Reason cited by the government is that the State governments may revise the minimum wages upwards and payments under MGNREGA will have to be raised accordingly. The increase of wage from 17 to 30 % has been affected from January 1, 2011 based on the CPI for agriculture labour. Future wages will be indexed to inflation every year says the Government. The wage increase is bound to be inflationary through higher budgetary spends of Rs. 3500 crores under MGNREGA.

The intent behind the MGNREGA is good, that is to provide employment and put some income in the BPL families but the delivery is full of flaws. Misappropriation, corruption, leakages have been thriving in the scheme in the absence of an effective delivery mechanism. CAG has already found around Rs. 90000 crores of spending under the scheme for which the accounts are not reconciled.

In the current year, of the budgetary provision of Rs. 40100 crore only 42% or Rs. 17000 crore has been spent leaving around Rs. 23000 crore to be spent within a few months that are left in the current fiscal. It is the bane of most social sector spending. A large portion of the allocated funds is unspent throughout the major portion of the year and when a few months are left the allocated amount is spent in a hurry to meet the target. Laid down procedures are overlooked and corruption sets in.

The government is already facing the strain on budgetary resources. Compulsive expenditure on debt servicing, defense spending amounting to a large portion of the revenue raised leave not much resources in the hands of the government for social sector spending.

The government says it hopes to bring down the fiscal deficit to 3% of the GDP by 2014-15 from the current level of 5.5%. But such promises to reduce the fiscal deficit remain unfulfilled promises as in the past. Prior to the election year when the fiscal deficit was overshot through expenditure increase by over 1 lakh crore above the budgetary provision was explained away by the Prime Minister thus; extraordinary circumstances require extraordinary measures.

The minimum wages for BPL families under the MGNREGA are supportive wages. Any increase of this wage as presently conceived will be compared by the agriculture labour and they would demand necessarily the increase in the minimum wages paid under the Minimum Wages Act. Consequently, agriculture produce prices are bound to rise, adding fuel to the already existing inflationary conditions. What best is the alternative? MGNREGA is required but the spending increase should increase only after the delivery mechanism is foolproof. Else the targeted beneficiaries would stand to lose as at present due corruption and misappropriation.

Selection of the districts where the program is to be implemented should not be for attaining political ends instead should be on an equitable basis spreading across all the districts of the country. The program implementation should be evenly spread throughout the year; dumping money in the hands of the have-nots within a short span of time on a large scale will fuel inflation.

Project selected under this scheme must necessarily facilitate the infrastructure building in the rural sector and enable increase of agricultural productivity. Spending under this scheme should not facilitate wining of elections in certain select constituencies by the political parties. Finally, since the government of the day is committed to growth of 8-10 %, it is necessary to keep the social sector spending simultaneously efficient to keep up the aggregate demand level.

Fiscal deficit target of 3% of GDP seems an impossible task to achieve given the low level of resources in relation to expenditure expectations. To meet the enhanced levels of social sector spending and to keep the fiscal deficit target of 3 % it has now become imperative that the government finds alternative resource generation programs.

One of the measures of levying a cess than tax on the agriculture income could be envisaged in the ensuing budget. At least the rich farmers who earn say above Rs. Ten lakhs should be subjected to this cess. Rates may be introduced on a progressive scale from 1- 10 % as income progresses.

If the fiscal health has to improve, agriculture income tax has to be introduced forthwith in the tax system. The non-agrarian sector has been funding for too long and bearing the burden of rural infrastructure building and poverty alleviation programs. Consequently urban infrastructure is too deteriorating for lack of enough funds to meet its own needs.

With the present taxation system, a growth of even 10% and above will not increase the government revenues enough to meet the expenditure required for infrastructure building as well as poverty alleviation programs. Politicians must bite the bullet at least at some point of time. Now is the time to prevent the agrarian crisis from blowing full-scale. Farmer’s suicide on failure of crops, due to debt burden, flood, drought etc., is now more frequent than in the past.

Agriculture tax can save the crisis ridden agrarian sector. One can think even of agriculture tax and spending through a special budget for the agriculture sector as is the case with railway budget. The political institutions have long been showing the lack of will to tax the farmers on political consideration now economics is playing fully out there when a farmer commits suicide or debt waiver schemes are demanded time and again. Economics cannot take the back seat any more. Political parties must unanimously agree to this tax sooner and save the country from inhumanitarian full-blown agrarian crisis of misery, disease, death and social upheavals.


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