Nrega

In: Business and Management

Submitted By lucy01123
Words 276
Pages 2
Assignment 1, PGPM
Sharp rise in rural wages contributes to food inflation spike
A sharp rise in rural wages has supported consumption growth, but also contributed to a sharp rise in food inflation.
An analysis of rural wage data by global investment Bank JP Morgan indicates that the advent of the National Rural Employment Guarantee Act, or NREGA, has resulted in a significant structural break in rural wage inflation.
[pic]While nominal wages in the rural economy grew at an average annual rate of 2.7% over a year ago, pre-NREGA average wage inflation almost quadrupled to 9.7% over a year ago between 2006 and 2009. Moreover, wage inflation continues to accelerate. Between January 2010 and May 2011, the annual nominal wage growth averaged almost 20%. While this could be partly because NREGA wages being indexed, sharp acceleration of wages was evident through most of 2010 — even before indexation came into effect. The JP Morgan analysis by Sajjid Chinoy and Jahangir Aziz concludes that the rise in rural wages and incomes have likely contributed to the structural increase in food inflation over the past few years.
This, it says has happened through following channel: Rising rural wages and incomes have resulted in increased food demand by rural families. With supply relatively inelastic, this increased demand for food has pressured food inflation.
The food inflation, which is still high, once again highlights the need to address supply-side bottlenecks, especially on the agricultural front, by taking steps to improve production, warehousing facilities and FDI.

a) Explain these phenomena in a demand-supply framework.

b) What measures need to be taken to tame this…...

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