From CAG to CACP PDF Print E-mail
Wednesday, 24 April 2013 00:00
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Bad economics can also be bad politics


India’s political class never tires of arguing that good economics doesn’t usually make for good politics. Just how untrue that is can be best brought out by the latest CAG report on the UPA’s flagship MGNREGA programme and the sharp increase in cane arrears in Uttar Pradesh that has farmers taking to the streets—a nervous Uttar Pradesh government has reacted by filing a flurry of FIRs against sugar mill managers and owners. With UP announcing a cane price of R280 per quintal versus the CACP-recommended R170, arrears in the state have more than doubled to R5,698 crore at the end of FY12 from R2,592 crore at the end of FY11. Given farmers’ arrears don’t add to their wealth, the hike in cane prices looks like good politics, but it is not working for the farmers as they end up not getting the money. And the fact that it is bankrupting sugar mills makes it bad economics.

The CAG report on the UPA’s flagship MGNREGA programme, tabled Tuesday, makes much the same point of wasteful public expenditure. A total of R2 lakh crore has already been spent on the programme over the past 7 years, but as the CAG points out, the employment provided per household has fallen from 54 days in FY10 to 43 days in FY12. While that could be because of the improved agriculture growth in this period, as the CAG points out, states that account for 46% of India’s rural poor spent just a fifth of the funds available to them under MGNREGA. And in 14 states and one union territory, just 30% of the planned works were completed.

The CAG report has to be viewed in conjunction with a forthcoming CACP report which points out that while MGNREGA has resulted in raising farm wages in certain states, the impact is over-stated—and naturally so, given that just 2-3% of all farm jobs today are generated by MGNREGA works. Indeed, an econometric model shows that the impact on farm wages is at least 4-5 times higher when other factors such as a rise in agri-GDP or construction activities are introduced into the equation. So, if the R2 lakh crore invested in MGNREGA was to be invested in creating agriculture infrastructure, the impact on creating sustainable agricultural jobs—and raising wages—would be much higher than it is today. Indeed, MGNREGA-induced wage growth has only resulted in higher inflation—this is because there was no great increase in supplies while consumption expenditure rose by R2 lakh crore over 7 years. By contrast, increased agriculture investment would lead to an increased supply response as well and so would not have been inflationary either. Good economics does make for good politics.


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