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. Government has instituted (PIN) Professional Institutional Network which steadily intervenes in its functioning to make it more effective and efficient. Under this program employment of 100 days in a financial year is guaranteed to people who volunteer to get themselves enrolled in it. Over 40% people enrolled are women providing a facelift to Indian villages. NREGA make green jobs. This has started showing results in rural India by reduction in poverty. The beneficiaries get 95-100 Rs everyday for their work. and resources. The Central government meets the cost towards the payment of wage. People can come and get themselves enrolled in it. The Panchayat or programme officer accepts the valid application and issues dated receipt of the application. It helps in creating assets by working on agriculture. Villagers and (SHG) self help groups helps in spreading awareness about the program. The employment is provided within a radius of 5 km. This has also been integrated with other government schemes to make growth of rural India more inclusive and quick. 3/4th of the material cost and certain percentage of administrative cost. Rajasthan and Tripura are the states where this is working very effectively providing more disposable income (saving) to rural people.The state government bears the cost towards unemployed allowance. The job consists of unskilled manual work.It started initially in 200 districts and within two and a half years spread to the whole country. Jobs which helped arrest rising temperature. This has resulted in multiplier effects in savings and financial security. 1/4th of the material cost and administrative cost of state council. water resources. This scheme is aimed at improving rural India by providing job to people who are able and willing to work under this scheme. It received Rs. livelihood of the rural people. extra wage is paid Within 15 days employment opportunity has to be provided otherwise state has to provide people with unemployment allowance . Office remains open all over the year.100 crore in 2010-11.40. Financial strategies like opening banks and ATM are developed to disburse money to beneficiaries in an efficient manner Thus it helps in enhancing security.NREGA NREGA known as Mahatma Gandhi national rural employment guarantee act is a flagship program of UPA government which came into existence in February 2006. If it is above 5 km. forests and roads. depleting water table and deforestation NREGA beneficiaries will also be covered under the Rashtriya Swasthya Bima Yojana (insurance cover package) that was given to provide health insurance cover to below poverty line workers and their families. it also stipulates that within 15 days of work money should be paid to people who are working under it. This helps in providing people with more disposable income which help make them more self reliant.
since the demand is more the companies will have to produce more. while presenting the budget for fiscal 2009-10 announced an allocation of Rs. and therefore they have to make more investments. an increase of 144 percent. In 2010-11 an allocation of Rs. Now.100 crore was made towards this project.000 crore for NREGA. As s there is an increase in the autonomous spending the demand curve shifts upward. 39.40.Effect of NREGA on INDIAN economy NREGA as multiplier Finance Minster Pranab Mukherjee. it increases to Z2. there is an increase in autonomous spending which is given by C0 + I + G – C1T C0 + I + G1 – C1T Because of this there is an increase in income as well as demand. employ more labor and thus there is further increase in salary to Y2 and the above cycle . When Government increases its expenditure from (previous) G to G1. invest more capital. At the same level of income Y1 where the demand was Z1.
The percentage is around 50 in Rajasthan and Madhya Pradesh. the investment must go down. 60 in Orissa and Uttar Pradesh and over 70 in Chhattisgarh and Jharkhand. they invest whatever savings they make under this project in their lands. . they create demand for commodities. When those working on NREGA sites spend this additional money. The crucial part of this statement is “given private saving”. employment and demand . which again provides a stimulus to production. In other words the equilibrium point is the point where the demand curve meets the 45 degree line. NREGA as accelerator According to a survey a very high proportion of agricultural labour households in India actually owns land. Considering the above example we can say that “ If the increase in private savings(because of investments) is more than the increase in spending by Government” then a fiscal expansion – an increase in spending. When farmers and workers from these sections ( which include producers ) avail the facilities of NREGA. raw materials and workers. . And so on in a spiral. may actually increase the investment. in turn.continues till the point where for the same income level the present demand is equal to the previous demand. This demand stimulating process is called the multiplier. I = S + T. ‘Public investment in this project incentivises private investment incentivises private investment’ In the central India tribal belt. The extra incomes so generated cause further demand. arguably the poorest part of the country earthen dams have recharged wells of those poor farmers who earlier worked as labourers to build these dams. creates purchasing power among workers. creates demand for capital. if there is an increase in the government deficit. The production of these commodities. Which in turn helps these farmers to rebuilt the decimated productivity of their farms. NREGA. .G Given the private saving.
income(output) will be higher. But. The investment is also increasing.Summarising the effect of NREGA using IS-LM Model Here. investment and government spending. the workers and the labourers are getting higher wages. at the same interest rate.e. . we see that the IS curve will shift right wards. together with the increase in government spending and the increase in consumer’s confidence. therefore their confidence is also increasing and at the same time we have analysed the effect of NREGA as an accelerator. the output depends on consumption. As the government spending is increased by over 140 percent. This implies that there will be higher output and higher rate of interest. i. the farmers. Therefore there will be a shift in the IS curve towards right.
" the UN agency said in its progress report on Millennium Development Goals (MDGs). inequality: Report New Delhi: The UNDP has highlighted India's rural employment guarantee scheme. reduce poverty and reverse inequality. Workers demand more wage.. As the real wage is going up. popularly known as NREGA. . UN agency said. citing the National Rural Employment Guarantee Act. renamed as Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS). ) (ZEE NEWS) The scheme. unemployment is also getting reduced. "Such robust social protection and employment programmes . for its impact on reducing poverty and reversing inequality. this can be understood with the above graph.Effect of NREGA on unemployment ( NREGA helps reduce poverty.. has benefited some 460 lakh households.
causing demand to grow and secondly.2 3. With supply remaining constant. 1/(1+u’)). because in longer run assets created by NREGA activities such as construction of wells and dams for irrigation purpose.3 10. We can see that inflation rate is highest in those states in which disbursement for NREGA is highest such as MP. Andhra Pradesh. This causes supply side bottlenecks as there aren’t enough hands at time of harvesting season when there is already high demand of laborers. jobs should be offered in lean periods. putting pressure on supply side. this phenomenon is short run. and spending on NREGA for the same period. Thus with an increased real wage. Orissa. Aggregate Demand and Aggregate Supply Does NREGA cause inflation? Well the answer.2 NREGA DISBURSEMENT(IN LAKHS) 1155 55171 49925 156471 76090 75512 11292 16530 2180 90781 The above table shows state wise inflation rate for the period of March – October 2006. NREGA. . STATE Punjab Bihar UP MP Orissa Rajasthan Tamil Nadu Karnataka Kerala Andhra Pradesh INFLATION(MAR-OCT 2006) 6.9 11. By contrast. it makes agriculture unviable. Inflation. the unemployment rate is reduced from Un to Un’. This shows clear impact of NREGA on inflation.5 6. wage level rises due to it. There are 2 major reasons for it. and marginal propensity to consume of the weaker section of society benefitting from NREGA being close to one. Firstly. leveling of roads. it increases price level of food items causing inflation to grow. NREGA cause wage levels to rise across the country.9 6. water conservation and harvesting improves rural infrastructure and increases the supply.1 8. at least in the short run is yes. This further increases price level.Since there is an increase in the real wage there is an upward shift in the Price Setting relation and it moves along the Wage Setting relation curve.4 11. However. inflation is much lower in states like Punjab and Kerala where there is hardly any money disbursed for NREGA. The equilibrium position is attained at the coordinates(Un’.1 6. thus reducing inflation. Also. demand for food items increases considerably. To counter this. NREGA creates shortage of farm laborers by giving higher wages to them.0 1.
Thus the consumers reduce their consumption. This increase in price leads to an increase in the price expectation. G. there is an increase in the government expenditure. This discourages the producers to produce more. T) Since. The increase in price discourages the consumers to consume more. Z) Y = Y(M/P. Thus the demand for the goods produced is less. the wage setters decide to increase the wages. This results in an increase in price of the goods so produced. . there is a rightward shift in the AD curve and a new equilibrium position is attained at A’ from A. Shift in the AS curve With an increase in the price expectations.Economics behind Inflation AS Relation is given by AD relation is given by P = Pe(1+µ)F(1 – Y/L. with an increased output and increased price level.
where output is equal to the original level of output. Somewhere around 460 lakh households have benefitted from the NREGA project. And so the race between prices and wages results in a steady wage and price inflation. workers. In response to the higher nominal wage. Short term inflation and Phillips curve Phillips. workers demand for higher nominal wages the next time wages are set for the firm. As already we have seen a rise in the price level of general food items. In response to this further increase in the price level. and the price level has increased to an extent. We can say that the NREGA project may lead to an increase in the general price level. leads to an increase in the general price level. Thus in a very short period. employment has been provided to a large number of people. firms increase their prices. This in turn. The increase in expected price level and reduction in the output continues till the point. In response to the higher price level. Therefore they will demand for more goods. the price level increases further.Thus the output is reduced with an increased price level. Samulson and Sollow discovered a negative relation between the unemployment rate and the inflation rate aroud 1960. As a result. when they set the wages ask for the further increase in their nominal wages. • • • • • • Low unemployment leads to a higher nominal wage. The higher nominal wage leads firms to further increase their prices. .
nrega.zeenews.net/ • http://en.com/news635028. And the Government too can reduce its fiscal deficit by reducing the capital allotted to the NREGA project.nic. Bibliography Books • Macroeconomics( Fourth Edition ). a day will come when the workers will start backing off from the NREGA sites into their own fields.Fate of NREGA With prices rising up and the poor people becoming more self sufficient and independent.html .nrega. Oliver Blanchard Websites • http://www.nrega.net/978/2/India. The workers can invest the savings made under the NREGA project into their own entrepreneurial ventures.org/wiki/Mahatma_Gandhi_National_Rural_Employment_Guarantee_Act • http://knowledge.in/netnrega/home.aspx • http://www.wikipedia.pdf • http://www.