Rural Income Not Supported By MNREGA: RBI In Monetary Policy Report

The Reserve Bank of India (RBI) said on Thursday that below-par performance of income guarantee scheme MGNREGA (Mahatma Gandhi National Rural Employment Guarantee Act) along with poor agriculture prices and a slowdown in the construction sector have led to lower farmer incomes. The performance of agricultural sector is key to the state of rural demand, the central bank said in its April 2020 Monetary Policy Report, which highlights factors ailing the rural economy. The MGNREGA scheme "does not seem to support rural income much due to delayed wage payments, lower wages and insufficient budgetary allocations", the RBI said, and the coronavirus (COVID-19) pandemic will only further aggravate the pain.

Lower agricultural prices in the 2016-2018 period had an important bearing on rural demand, according to the RBI. Domestically, bumper harvests led to a decline in food prices across the country. Internationally, a global food supply glut hampered the country's exports of agricultural products, and the resultant accumulation of food stocks further depressed the prices back home.

Rural wages also remained subdued due to the slowdown in the construction sector. Further, the MGNREGA has not lived to expectations, according to the central bank.

Conceived as a social security measure to boost the rural economy, the MGNREGA scheme has been an under-performer due to a variety of reasons. Quoting the National Statistical Office (NSO)'s Periodic Labour Force Survey (PLFS) report released in May last year, the RBI said wages under MGNREGA were lower by 74 per cent for rural men and 21 per cent for rural women compared to market rates for non-public work.

To make matters worse, the COVID-19 pandemic and subsequent lockdown will directly hit rural demand, according to the RBI. "Given the severity of the pandemic, rural demand is expected to go down further at least in the near future," the central bank said.

The RBI's Monetary Policy Report comes at a time when India entered the sixteenth day of a 21-day nationwide lockdown to curb the spread of the coronavirus outbreak, stalling businesses and consumption in an already-ailing economy.  

The government has announced a slew of measures such as direct cash transfer to farmers, wage hike for MGNREGA workers and utilisation of welfare funds for construction workers, to offset the adverse impact of the COVID-19 disease-induced lockdown on rural demand.

Hundreds of thousands of migrant labourers have returned to their villages in wake of the lockdown, which began on March 25 amid rising number of COVID-19 cases in the country.

In the report, the RBI also touched upon other issues such as GDP growth and consumer inflation while hinting at an extended period of "accommodative" policy stance. The RBI also warned the world economy can enter a recession in calendar year 2020 citing "post-COVID projections".