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Government to peg MGNREGA wages to inflation in bid to hike incomes (Relevant for GS Prelims; Economics)

The Centre plans to inject more money into the UPA’s flagship Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) scheme by linking wages under the Act to an updated inflation index, which will be revised annually. It hopes this will increase wages, thus increasing purchasing power and reviving rural demand.

The increased wages based on updated inflation indices may result in 10% higher government expenditure on the scheme. Wage rate revisions are usually notified at the beginning of a financial year, but the Ministry is trying implement the hike during the current year itself, as part of a stimulus package to counter the ongoing slowdown.

Criticism of move
However, some economists question whether linking wage rates to a better inflation index will be sufficient, given that MGNREGA workers get paid much lower than market rates. The national average wage of an MGNREGA worker is Rs. 178.44 per day, less than half of the Rs. 375 per day minimum wage recommended by a Labour Ministry panel earlier this year.

Why revision of indices is justified?
The Ministry of Statistics and Programme Implementation and the Labour Bureau is working to update the consumer price indices for rural areas (CPI-R) and agricultural labourers (CPI-AL) respectively.

The consumption basket of CPI-AL [which determines MGNREGA wage revisions] has not been updated for more than three decades, but rural consumption patterns have changed drastically in that time. Food items make up more than two-thirds of the CPI-AL consumption basket, but rural workers today spend a much smaller percentage of their money on subsidised food, and an increasingly larger amount on health, education and transport costs.

High demand for MNREGA work
Even with existing wages, the scheme is running out of funds due to increased demand for work. MGNREGA received a budgetary allocation of Rs. 60,000 crore, of which more than 75% has already been released by the Centre even before the halfway point of the year.

Droughts and floods in several States have led to an increased demand for work in the early part of the year, and the economic slowdown could spur demand again once the rabi planting season is over.

Source: The Hindu



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