 "Coming up next: A new wage-price spiral in 2012")
By R Jagannathan
It must be a coincidence. On 16 March, Finance Minister Pranab Mukherjee announced a Rs 7,000 crore cut in outlays for the Mahatma Gandhi National Rural Employment Scheme (NREGA) from Rs 40,000 crore in 2011-12 to Rs 33,000 crore in 2012-13.
A few days ago, the Central government announced a 7 percent increase in dearness allowance for central government employees and pensioners - involving a total outgo of around Rs 7,500 crore, an amount that is slightly larger than the money saved on NREGA.
Almost simultaneously, the government has also announced an enhancement in NREGA wage rates across states from 1 January 2012. The new rates now range from a minimum of Rs 122 per day in Bihar and Jharkhand to a huge Rs 191 in Haryana. Karnataka, with Rs 155 as the basic NREGA wage, gets a hike of 24 percent from Rs 125 - thanks partly to a high court verdict that said NREGA can’t be less than local minimum wages (see the new rates here).
[caption id=“attachment_257268” align=“alignleft” width=“380” caption=“NREGA will be concentrated in fewer areas, or fewer workers will get employed under the scheme this year. But overall wages will rise anyway due to NREGA’s psychological effect. Reuters”]  [/caption]
Two weeks before the budget, the ministry of statistics and programme implementation decided to converge NREGA funding with projects under the MP Local Area Development Scheme (MPLADS), under which each MP gets Rs 5 crore per annum to take up urgent work in his constituency.
Add all these pieces of information together, and this is the picture that emerges.
One, the huge wage increases for both central employees and NREGA beneficiaries will push up urban and rural spending power. Private sector wage increases will not lag behind (12 percent says, one survey).
Two, since the NREGA wage increase will be coming with a reduction in outlay, it means that fewer workers will get higher wages. NREGA will be concentrated in fewer areas, or fewer workers will get employed under the scheme this year. But overall wages will rise anyway due to NREGA’s psychological effect.
Three, the convergence of MPLADS and NREGA spending means that government funds will be used to benefit incumbent MPs to get re-elected. More rural spending increases are likely due to this. This is the beginning of pre-election spending.
Four, since the budget has promised to cut subsidies, fuel and fertiliser prices have to be raised this fiscal year. This means minimum support prices have to be raised significantly for farmers this year - both in kharif and rabi
Five, the increase in central taxes - excise and service tax are up 2 percent across-the-board - and state taxes ( Maharashtra and Tamil Nadu are already raising levies on many things) will provide a cost-push to everything. More state budgets are going to do the same thing
Net-net: 2012-13 is sure to fan the wage-price spiral once again.
 "Israel targets top Hamas leaders in Doha; Qatar, Iran condemn strike as violation of sovereignty")
 "Nepal: Oli to continue until new PM is sworn in, nation on edge as all branches of govt torched")
 "Who is CP Radhakrishnan, India's next vice-president?")
 "Israel informed US ahead of strikes on Hamas leaders in Doha, says White House")
 "Israel targets top Hamas leaders in Doha; Qatar, Iran condemn strike as violation of sovereignty")
 "Nepal: Oli to continue until new PM is sworn in, nation on edge as all branches of govt torched")
 "Who is CP Radhakrishnan, India's next vice-president?")
 "Israel informed US ahead of strikes on Hamas leaders in Doha, says White House")
](https://images.firstpost.com/wp-content/uploads/2012/03/nrega-reuters1.jpg){kind=link}