The Broad Mind | NREGA – the convenient scapegoat for inflation?

With inflation being persistently sticky, and the real reasons being too tough to address (by the government) and too banal for commentary (by the pink papers), NREGA has come in for some really cute causality analysis. The latest in the line, not sure if it wasnt back-handed, was TN Ninan, who “credits” NREGA and procurement prices for the current inflationary bout. This article was promptly rejoined by Gold Standard in this commentary on INI.

But the mathematics look just a trifle too inconvenient for such easy analysis.

One, at 40,000 crores, NREGA allocation is less than 1% of GDP, and around 5% of government expenditure. Hardly the stuff of inflationary fiscal over-expenditure.

Two, lack of productivity growth in agri is not a function of prices. If anything, low prices and withering away of extension services (something that Prof Ashok Gulati’s Agri Price Commission recognises and articulates as the prime reason) are responsible for the low productivity. Decades of under-investment in infrastructure is the other big variable. To ascribe higher procurement prices and NREGA spends on lack of productivity growth is well, rich.

Last, its hugely hypocritical to bemoan cash trasnfers (and NREGA is nothing but one) of 40k crores to the poor (even if some of it gets misdirected and “lost”) when tax exemptions (almost all of it misdirected and discretionary) to the rich and middle class amount to many times that amount.

DISCLAIMER: This is an archived post from the Indian National Interest blogroll. Views expressed are those of the blogger's and do not represent The Takshashila Institution’s view.