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Banking News
Estd. 20-4-1946
8 to 15 JANUARY,
NEWS BULLETIN from ALL INDIA BANK EMPLOYEES’ ASSOCIATION
For a greener planet, please don't print this unless necessary
Rs.15,000 Crore Remittance Scam hits six
banks
Shrimi Choudhary, The Daily News & Analysis
January 7, 2015
Transactions used as cover to take black money out of the country:
Bank officials also believed to be guilty: ED to hand over case to
CBI
The Enforcement Directorate (ED) has unearthed a mega scam of
fraudulent foreign remittances worth Rs 15,000 crore, involving a number
of dubious importers. The scam involves importers depositing fake bills of
entries (of imports) in banks and remittances are made to unknown people
outside India. “We are investigating the case under the Foreign Exchange
Management Act (FEMA),” a top ED official told dna.
Six leading banks-- ICICI Bank, IndusInd Bank, ING
Vysya, YES Bank, Kotak Mahindra Bank and Bank of
India– were hit by the scam.
“Out of the Rs 15,000 crore of fake bill entries, we have so far established
around Rs 4,000 crore. We have asked banks to lodge FIRs against all
these importers and the banks have agreed. The transaction happened
from 2011 till May 2014,” a senior ED official, who is investigating the case
told dna. Most banks chose not to respond to dna’s repeated queries.
What was the modus operandi?
As per ED sources, dubious importers submitted forged bills of entry and
other import documents to banks with the intent to fraudulently remit
foreign exchange. “Multiple duplicates of each bill of entry were made and
submitted to different banks to show legitimate imports and to
illegitimately remit huge foreign exchange outside India,” said sources
close to ED.
Who are the importers under ED scanner?
Kanika Gems, Charbhuja Diamonds, Sambhav Exports, Keshav Impex,
Pulkit Impex and Yogeshwar Diamonds, among others. “We are probing
the importers’ background and checking with banks if due diligence and
KYC were done properly. These fake bills of import might have been used
for gold smuggling,” a senior official told dna.
Is black money involved in this scam?
“By using these dubious entities, black money in the country is sent
abroad, especially to tax havens like Mauritius, British Virgin Islands and
Cayman Islands without paying any tax, an Income-Tax official told dna. A
couple of days back, a special team of ED officials searched a regional
branch office of UCO Bank in Mumbai and Chandigarh and recorded the
statements of top officials. So far, it has been found that no due diligence
or KYC has been carried out in the advance remittance process of exports,
said one ED official.
What’s the total worth of fake bills?
ING Vysya Bank has made 735 fake import remittances worth $264.3
million while Kotak Mahindra Bank made 734 fake remittances worth
$187.9 million. dna has copies of fake entries made in banks. IndusInd
Bank made 275 fake entries worth $88.2 million, and ICICI Bank reported
91 worth around $36.4 million.
Are bank officials also involved in the fraud?
Bank officials are already under ED scanner. “Banks are supposed to share
details of suspicious transaction to FIU (Financial Intelligence Unit). But
they (banks) have not done so. We are investigating if it is just negligence
or part of conspiracy by bank officials,” said ED.
What does ED suspect?
“Prima facie, there is clear negligence by some bank officials while dealing
with these suspicious importers. We suspect collusion. Once we get strong
evidences against these officials, the case details will be handed over to
the Central Bureau of Investigation (CBI) for further action,” the source
said.
What is the directorate’s advice to banks?
Faced with a surge in trade-based money laundering and hawala scams,
especially in Mumbai, Delhi and Gujarat, the ED had alerted banks and
asked them to be more vigilant while transferring large funds, as reported
by dna on November 20, 2014. The directorate had asked banks to plug
loopholes and check the growing menace in a meeting attended by top
compliance officers and Money Laundering Reporting Officers of banks.
Public sector bank mergers may be delayed as
NPAs, capital issues plague the big players like
SBI
Sangita Mehta The Economic Times January 6, 2015
Mumbai, January 5: Mergers among public sector banks are likely to be put
on the back burner for a few years as big banks themselves are saddled with
bad loans and are short of capital, and even the top player, State Bank of
India, is in no hurry to merge its associates with itself, industry officials said.
At the two-day Gyan Sangam of public sector banks (PSBs) held in Pune over
the weekend, chiefs of large banks, probably for the first time, conveyed to
finance ministry officials that they are not in a position to take over smaller
banks, because they face the same problems as their potential targets. Thus,
any acquisition will only bring more stress to their balance sheet and lead to
a situation of the blind leading the blind.
Industry officials said that even SBI has conceded merger of associate banks
with itself is not possible immediately. According to them, in a closed-door
meeting between bankers and finance ministry officials in Pune, Arundhati
Bhattacharya, chairman, SBI, said merger can happen only after the
performance of an associate bank matches SBI's standard.
When contacted by ET, Bhattacharya declined to comment on this issue.
SBI's net non-performing assets, at 2.57% as of March 2013, are lower than
its associates. Also, SBI's ability to absorb shock measured by way of capital
adequacy ratio stood at 12.44%, higher than its associates.
Besides, pension benefits of SBI employees are better than associate banks
—which means it will have to increase pension benefits of the associate bank
from the day of merger.
SBI had provided Rs 900 crore towards pension benefits of State Bank of
Indore and State Bank of Saurashtra that it acquired. It is estimated that, if
merged, it will have to spend around Rs 4,000 crore for pension benefits of
its remaining five associate banks.
At the Pune conference, the finance ministry had formed six different groups
comprising bankers, bureaucrats and RBI officials to propose strategies for
banking reforms.
The mergers and consolidation group suggested that the time is not ripe for
mergers as they will not be able to derive the benefits of the consolidation.
"It was concluded that we should look for better times when the NPAs are
under control and when banks have better capital adequacy ratio," said a
bank executive who was part of this group.
The finance ministry also accepted that any proposal of merger should be
mooted by boards of banks and not driven by the government, officials said.
Under the UPA government, former finance minister P Chidambaram had
often urged PSBs to form 2-3 big banks through consolidation to match the
size of Chinese banks.
Govt banks are expanding but it’s the private
ones that do all the new hiring
Sandeep Singh The Indian Express January 6, 2015
New Delhi, January 6: Public sector banks have opened more number of
branches across the country over the past few years but it is the private
sector where most of the hirings have happened, according to latest data
released by the Reserve Bank of India. According to the data released last
week, one in every four bank-employees works with a private bank today—
a sharp rise from one in 10 in 2005.
Significantly, Prime Minister Narendra Modi on Saturday promised greater
autonomy to public sector banks, and emphasised the need for them to be
run professionally. The Finance Ministry today issued directions asking PSBs
to act without “fear or favour” and to ignore “extraneous considerations” in
their commercial decisions.
Staff Headcount: Public & Private Banks
March 2005
Public Sector Banks
March 2014
Employees
Added #
7,48,805
8,30,250
81,445
Private Banks
92,419
2,96,115
2,03,696
Foreign Banks
17,336
24,834
77,498
8,58,560
11,51,199
2,92,639
All Commercial Banks
# Additions over the nine-year period
Source: Reserve Bank of India
Although public sector banks still lead with a combined employee strength of
8.3 lakh out of the total 11.51 lakh bank employees across the country, the
interesting part is the number of hirings since March 2005. Between 200405 and 2013-14, the number of employees in private banks— both domestic
and foreign — went up three times from 1.09 lakh to 3.2 lakh while public
sector banks added a comparatively low 81,445 employees.
Of the total 2,92,639 hirings by all scheduled commercial banks (SCBs) over
the nine-year period, more than 72 per cent or 2,11,194 employees were
recruited by the private sector, mostly by Indian private banks. Foreign
banks had only 24,834 employees as on March 31, 2014.
As a result of the hirings, the share of Indian private bank employees in the
industry has gone up from 10.76 per cent in March 2005 to 25.7 per cent at
the end of March 2014, with the addition of 2,03,696 employees during this
period.
Top officials with private banks said the rise in the number of hirings was a
result of both increase in the number of branches and reduction in the
outsourced sales staff. “All private banks had strong outsourced sales staff
but now most of us are getting our dedicated sales force to go out to sell,”
said the HR head of a private sector bank. He said the outsourced sales
staff, that accounted for two-thirds of the sales team earlier, has now come
down to a quarter.
On the other hand, with the posts of four chairmen and 14 executive
directors currently lying vacant in PSBs, hirings at government-owned banks
has been dismal across all levels. While the government has announced its
decision to split the post of chairman and MD at PSBs, there have been talks
to consider individuals from the private sector for the top job at PSBs.
The All India Bank Employees Association (AIBEA) said there is a huge
shortage of employees in the sector. “Looking at the present need, there are
around two lakh vacancies now and another three lakh vacancies will come
up over the next three or four years on account of retirements,” said C H
Venkatachalam, general secretary, AIBEA. He said while over 25,000
branches were added in the past seven years, only 20,000 employees were
recruited.
A source in the banking sector, however, said the PSBs consciously went
slow on hirings as they were looking to rationalise their staff strength.
As far as opening new branches is concerned, the private banks have a lot
of catching up to do. Between March 2009 and March 2013, as many as
24,552 new offices were opened by all scheduled commercial banks, of
which only 6,713 or 27 per cent were opened by private banks. SBI and its
associates opened 4,363 offices and the nationalised banks opened 13,437
offices or 54 per cent in that period.
Interview: Jayant Sinha, Minister of State for Finance
No government has done such fundamental
banking reforms in last 45 years: Jayant Sinha
Deepshikha Sikarwar & Vinay Pandey
The Economic Times Published on January 7, 2015
New Delhi, January 6: There was a significant amount of political
interference in the operations of public sector banks under the previous
government, Minister of State for Finance Jayant Sinha said in an interview
to ET. He said the new government has set out to usher in reforms that aim
to give public sector banks operational autonomy with accountability but no
political interference. Sinha spoke to ET. Edited excerpts:
Despite the downturn, the private sector hardly has any NPAs (nonperforming assets) while it is a major problem with public sector banks.
Where do you see the problem?
Jayant Sinha: If you look at the data, price-to-book multiple for the private
sector banks is 2.35, whereas average multiple for the public sector banks is
0.67. If you look at market capitalisation, even though the public sector
banks account for 77% of the advances and 76% of deposits, they only
account for 36% of market capitalisation and about a third of the profits. So
while the public sector banks dominate the banking sector in terms of assets
and deposits, in terms of profitability, market capitalisaion and multiples,
the private sector banks far outstrip them.
The public sector banks face various restrictions because they are more than
51% government owned—they by a Supreme Court order effectively are
viewed as public servants. The moment they are viewed as public sector,
there are a number of restrictions that are imposed on them in terms of
their operating autonomy, including RTI (Right to Information), CVC
(Central Vigilance Comission), CBI ( Central Bureau of Investigation), CAG
(Comptroller and Auditor General of India)—they are within the purview of
all of these investigative agencies. There are civil service rules that apply to
their HR policies, there are recruitment restrictions and so on. So because
they are viewed as being public servants, instruments of state, it becomes
difficult for them to compete on a level playing field with the private sector.
Two, in the previous government, unfortunately, there was a situation
where there was a significant amount of political interference in the
operations of these banks where commercial decisions were set aside. There
were decisions that should not have been made. And these political
interferences included loans, in corporate debt restrictions, transfers,
promotions and so on.
Three, what the private sector banks are able to do is to be able to very
judiciously evaluate which sectors they want to make advances to and the
sectors they do not want to. For instance, the private sector banks have far
less exposure to infrastructure than public sector banks and if there is a
problem in the economy it is because of those Rs 18 lakh crore worth of
stalled projects. So they have a disproportionately high exposure to the
infrastructure sector and to these stalled projects, which have also
contributed to high NPAs and therefore lower level of profitability.
These are the three factors that have made it difficult for the public sector
banks to compete on a level playing field with the private sector banks.
When it comes to priority sector lending, which is 40% of advances, those
apply equally to the public and private sector banks. The RBI regulates in an
ownership neutral way.
Would you say that reducing the government stake to below 51% is the way
forward and how feasible is it?
Jayant Sinha: That is precisely the wrong question. The right question is
how do we take our public sector banks and enable them to be globally
competitive, to demonstrate high performance so that they can compete on
a level playing field with other financial institutions, whether they are Indian
private sector banks or foreign banks. Those are the things we have
embarked on. As and when we need to think about providing them capital,
of course, the government as the majority shareholder will provide what is
necessary. But we have to consider that capital shortage is not imminent.
Most of it is required because of Basel III, because we have taken a very
prudent position unlike many other countries. It is because we want to run a
very sound and tight ship. Second, capital shortage is not as important as
the talent shortage. A large number of EDs (executive directors), MDs
(managing directors) and GMs (general managers) are retiring in the next
year and we don't have people in the pipeline. We are more concerned
about the talent shortage not capital.
You mentioned how organisations like CAG and CVC can put pressure on the
banking system.
Jayant Sinha: Let me change that. I wouldn't use the word pressure. The
fact that you are a public servant and there is a possibility that 10 or 20
years from now someone could come back and say that commercial
decisions you made were made because of the following reasons- (it) makes
it difficult for people to take unimpeded commercial decisions.
How do you get them out of this rut? What is the long-term solution?
Jayant Sinha: The Prime Minister was crystal clear at the Gyan Sangam (the
January 2-3 confluence of state-run banks). First, there will be no political
interference. The banks have operating autonomy, they should make the
right commercial decisions and apply commercial judgment. They should be
accountable for it but there would not be any interference. There was a
different regime, we know what their conduct was and why there was
significant political interference. That has ended.
Secondly, we will professionalise these institutions and ensure that we have
very capable managing directors running these banks and they will have
sufficiently long tenure. We have said that they will have a three-year
tenure, we will separate the role of the chairman and the MD. We will put
professional people on the board and have an independent empowered
board. Once you are clear this is how it will work no other regime can come
and start politically interfering or turn the clock back on professionalism.
In terms of structural solutions, bankers made a set of recommendations.
Those recommendations of the bankers are under consideration and
advisement with the government. They made a very important
recommendation, which the Nayak Committee also made, which is to create
a Bank Bureau. The role of the Bank Bureau is threefold. One, to appoint
professionals on these bank boards and ensure that they are independent
and empowered. Two, be a participant in the selection of the MD. Three, the
bank bureau will assist banks in thinking through their strategies and what
they need to do as far as raising capital is concerned. This Bank Bureau then
effectively becomes a precursor to the Bank Investment Company. We have
a positive mind towards those recommendations. Now we will work on those
and see what can be implemented.
Views on On Gyan Sangam & Banking Reforms
Jayant Sinha: If you think about bank nationalisation that Mrs Gandhi did in
1969, it's been 45 years before any other government has chosen to act in
such a fundamental and transformational manner as far as public sector
banks are concerned. We got everyone from the ecosystem to come in. As
Arundhati ji (CMD of SBI) said, so far no body has asked the patient what
the problem is. The process has been set in motion to transform the banking
sector. The government has agreed on two important items. One operating
autonomy, which means no political interference in day to day functioning.
Two, professionalisation of banks, which means independent board
members, separation of chairman and MD. In addition to that bankers have
given a whole series of recommendations... Those are already under
consideration.
In the banking sector, the government has not clearly articulated its view on
consolidation. There are multiple small banks...
Jayant Sinha: I think this is really for the banks themselves to decide. In a
market economy you have empowered bank boards that are thinking
through what the right strategy for their banks should be. And, as and when
these bank boards get established and they think it through and they will
come to these decisions.
The high leverage of big business groups and high interest rates have made
private investments difficult. Are you going to be flexible on fiscal targets to
step up public investments that even the mid-year economic review also
suggested?
Jayant Sinha: Our promoter groups right now are very leveraged, and their
balance sheets are not sturdy enough to start investing in large volumes.
It's been stated in the mid-year economic outlook as per the CEA's (chief
economic adviser Arvind Subramanian) perspectives on this matter as well.
Between the NPAs and the leverage that they have on their balance sheets,
it would not be wise to expect large investment in infrastructure from these
groups. Therefore, we have to think very creatively how do we unlock public
investment and bring $25-50 billion. We are talking about Rs 2-3 lakh crore,
let's say, of public investment into the economy. Our thinking is that if we
have to lift the economy from the 6% growth trajectory it is on to 7-8%, it
needs that kickstart so that it can go from this energy orbit to the next,
where it can sustainably and (in a) non-inflationary way grow at 7-8% a
year.
Does that mean we will go easy on FRBM (Fiscal Responsibility and Budget
Management Act) and fiscal deficit targets?
Jayant Sinha: Obviously, those are the ways in which we are thinking about
good and creative solutions.
Would that require a tweak in our fiscal math as your tax revenues are not
really going to grow that much?
Jayant Sinha: We will have to wait and see on that.
Do you think with a tweak in the fiscal road map and aggressive
disinvestment it is possible to raise the RS 2-3 lakh crore you have talked
about?
Jayant Sinha: I think it is entirely possible and the fact that we have
received this decisive mandate from the people of India is precisely to
engage in this kind of thinking and to enable this kind of public investment.
So you can be sure that we are seized of the matter and we are working
very hard on that and we are doing it within the framework of sound
economic management and fiscal prudence that we have already outlined in
the budget.
There are many levers that can raise the funding for that level of public
investment. There are levers such as disinvestment and spectrum sale. Even
the coal auction, I think, is going to result in significant amount of capital
coming to us. Anything from Rs 20,000 crore to Rs 40,000 crore might come
out of coal auction. We will see how much the spectrum auction yields.
There are different ways and means through which government's vast
balance sheet and sets of assets can be unlocked to be able to generate at
least Rs 2-3 lakh crore.
Whenever there is money, there is a temptation to splurge. How do you
ensure this extra money that comes from auctions is used for capital
spending?
Jayant Sinha: There is no desire to splurge. We want to invest as
thoughtfully as we can in those high multiplier sectors where we can unlock
growth for the economy and create jobs. These sectors are infrastructure,
construction, tourism and housing.
When the previous NDA government was in power we understood very
clearly even then that we needed to bring down interest rates, we needed
direct investment in highways, affordable housing, construction, and we did
that. If you look at the script we followed in that government - real interest
rates came down, interest rates came down, inflation came down, GDP
growth which was at 4% to 5% went up to 8.5%, investments grew. We
have seen this movie before. We know how it works. So trust us.
You mentioned interest rates. The differences between North Block and the
Reserve Bank of India (RBI) on interest rates has been written about, talked
about. Do you think it's time we will see some relaxation in monetary
policy?
Jayant Sinha: We are all data-driven, fact-based people and obviously the
people on Mint Street have access to very high-quality data, very highquality analytics and models. They will obviously look at the numbers, they
will look at trends and they will balance out a number of things and make
the decision at the right time. We have to leave it to their super-professional
judgment to make the right calls.
When you look at inflation, there is a tradeoff. Certainly it benefits the
economy to have an interest rate cut which is meaningful—25 to 50 basis
points—and particularly when that interest rate cut signals a turn of the
interest-rate cycle. That is very beneficial to the economy, we all understand
that. That is really the short-term impact. But we also have to think longer
term because ultimately we are stewards of the economy for the people of
India. Longer term, it is very important for us to establish two things independence of the central bank and the quality of the thinking and
judgment that is there. Number two, the fact that we are determined to
fight inflation in the long run as well. If we establish the credibility of the
central bank and our inflation-fighting credentials for the long term, then we
are likely to see growth of 7-8% which is non-inflationary for the next five
or 10 years. That's the price. If that's the tradeoff, we are not going to give
up those five or 10 years of really well-justified solid credentials of being
people who are going to fight inflation just to get a little boost in the short
term.
We have to rely on the excellent professional judgment, the data-driven and
fact-based approach of the RBI to take the right call at the right time. I
think this whole discussion about North Block and MoF (ministry of finance)
being on one side and RBI on the other side is fallacious. The reality is we
are one team and our goal is to ensure that dramatic and accelerating
growth of the economy.
In North Block and political figures like us obviously want growth but at the
same time we also understand you have to balance short term and the long
term. Those are all understood.
The upcoming budget is the most anticipated budget in the recent years.
You get to lay down the agenda for the next four years. What are your
thoughts?
Jayant Sinha: Reforms are a continuous process. This government has come
into power with the mandate of the people to truly transform the Indian
economy, to take it from the state that we inherited— sub-par growth,
growth below 5%, which had not happened in 25 years, inflation entrenched
for five years, no job creation. Indian economy was in the ditch. The
mandate is to do what is necessary to power this economy to achieve 7-8%
GDP growth rate and create millions of net new jobs. You can be sure we
will pursue it. In the last six months, if you look at all the different things
that we have done, they are structural in nature and which ultimately will
not just be additive in their impact but multiplicative. GST, land ordinance,
transparent auctioning and allocation of mineral resources, Jan Dhan
Yojana, Krishi Sinchayee Yojana, 100 smart cities and so on. We have done
more than what was done in 1991. Then it was done with a gun to their
head, now we are doing because we have the mandate of the people of
India.
The RBI governor has pitched for incentives for savings...
Jayant Sinha: The PM has said and the governor has said and they both are
right that we have to get household savings, which in India are quite high,
and we have to ensure that they come out of real assets like gold and land
that don't have the kind of multiplier effect and productive impact on the
economy that financial instruments do. We have to find mechanisms and
ways in which we can take household savings and put them into financial
instruments so that they can be invested profitably for growth of economy.
In fact, the PM said in Pune in his speech that we need to run major
financial literacy programmes so that people understand the benefits of
putting in money into financial instruments as opposed to gold. We need to
find ways to encourage financial savings.
Would you want to go the tax incentive way for a while?
Jayant Sinha: Wait and watch.
This government has got a lot of bad press on religious conversion. Do you
think this has sent out wrong signals to foreign investors?
Jayant Sinha: If I talk to business people and investors, what I hear from
them is that what we are doing as far as GST, land acquisition, FDI in
insurance, banking reforms—those are the things that really matter to them.
Because they have to look at a business and ask, is the business going to
come up quickly enough and generate return on investments? So, when you
think about those things, things that you brought up are not that relevant. I
think everybody is focused on really substantive issues that affect the
economy and that's what we are focused on.
The government has issued multiple ordinances. This risks creating further
problem in the Rajya Sabha. What is the government trying to convey
through these ordinances?
Jayant Sinha: By these ordinances we demonstrate very clearly that we
have a commitment to reform and taking forward policy in these areas. We
have demonstrated very clearly to business people, to investors, to
consumers that they elected us with a decisive mandate for change and
transformation and we are following through on that even though the
opposition is recalcitrant, even though the opposition is throwing up road
blocks in Parliament. Fine, we will still do what we have to do and we need
to do and which is constitutionally our prerogative to do. Two, when the
ordinance is in force, the decisions that are made are legal and lawful. In
some ways, think of it as a window of opportunity.
Rural Wage Growth Lowest in 10 Years,
Signals Farm distress, Falling Inflation
Harish Damodaran & Surabhi
The Indian Express Published on January 7, 2015
New Delhi, January 6: Rural wages in India have registered an average
annual growth of 3.8 per cent in November, the lowest since July 2005,
according to Labour Bureau data. The 3.8 per cent year-on-year increase is
a significant drop relative to the two-digit growth rates prevailing until June,
and the peak 20 per cent-plus levels of 2011.
“The numbers confirm the findings in our mid-year economic analysis that
inflation is coming down sharply and, probably, sustainedly,” the chief
economic advisor in the Finance Ministry, Arvind Subramanian, told The
Indian Express.
The deceleration in rural wages— the 3.8 per cent nominal growth is lower
than the annual consumer price inflation of 4.09 per cent for rural India in
November— could further strengthen the case for the Reserve Bank of India
(RBI) to initiate policy interest rate cuts sooner than later.
In a speech on ‘Fighting Inflation’ delivered last February, RBI Governor
Raghuram Rajan had underlined the role of rural wages as a major
determinant in food price increases and boosting inflation expectations in
general. “Nominal rural wages have grown at a sharp pace during the last
five years. Econometric tests suggest causality has flowed from wages to
prices”, he had said.
The current moderation in rural wage growth, to the extent it is seen to be
helping “anchor” inflation expectations, may go some way in influencing the
RBI’s monetary policy actions in the coming days. “It is a positive
development no doubt, but the central bank would also take into account
other factors while deciding on monetary policy”, said D K Joshi, chief
economist at the rating agency Crisil.
Subramanian said that the lower rural wage increases is further proof that
“monetary conditions are getting tighter”. If the fall in inflation is happening
faster than expected, it means that the RBI’s “real policy rate (repo rate
minus inflation) is becoming greater”. In other words, the case for slashing
interest rates has become all the more strong now.
The Labour Bureau data showed the average all-India daily wage rate across
23 agricultural and non-agricultural occupations at Rs 266.26 for November
2014, as against Rs 256.52 for the same month of the previous year. The
figures are based on a revised categorisation of occupations with effect from
November 2013, and hence comparable.
Pronab Sen, chairman of the National Statistical Commission, attributed the
rural wage slowdown, especially over the past 6-7 months, to the reversal of
the factors that stoked it in the first place.
Rural wages started going up in 2007, thanks to increased non-farm
employment opportunities in a booming economy aided by improved road
and telecom connectivity. This was further enabled by MGNREGA and rising
crop prices that made it possible for farmers to absorb the wage increases.
All three drivers are showing weakening now. A slowing economy has led to
a drying up of job opportunities for rural migrant workers, especially in
sectors like construction and manufacturing. The crash in prices of most
crops has, likewise, reduced the scope for pass-through of wages by
farmers. And finally, MGNREGA appears to have lost its bite. “We have had
a change of government, due to which the emphasis on MGNREGA has been
somewhat lost. It has to come back”, Sen said.
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