Comments on: The impact of Rs. 2/kg rice

By: Chevalier

Chevalier — Thu, 06 Aug 2009 19:58:58 +0000

You’re naive if you think in the real world that cost and price are not correlated – that’s only in ideal-state microeconomics textbooks. And even in the ideal-state scenarios, any industry will eventually have a steady, constant, small *margin*, (not profit $) i.e. price will eventually be cost + C.

And the point of my whole comment was how having a little extra money enables rural India to raise prices of their goods and services by allowing them a little more leeway in reducing supply and increasing demand of their services & products, e.g. by better marketing, better logistics, industry consolidation, technology, etc. That’s the same luxury that the manufactures of IMAX movies, shopping malls, overpriced perfumes and parking areas have had through these many decades around the world – and it’s a good thing for everybody that this is happening.

By: skimpy

skimpy — Sun, 02 Aug 2009 08:10:33 +0000

agree. you talk about subsidy. the problem here is about double subsidy – NREG + cheap rice

By: skimpy

skimpy — Sun, 02 Aug 2009 08:09:44 +0000

firstly:
there is a rule in the NREGA that non-salary expenses under the scheme are to be minimized. which means no machinery, no assembly lines and lots of manual work.

yes, there is enough and more work to be done, but unfortunately the strong regulations mean that the scheme can’t be used for that.

secondly:
the TNIE article argues that – that there’s no incentive to make more money. and i pick it up from there and say that since essentials are taken care of, and a certain lifestyle has been used to, inertia are there to work more to earn more.

By: skimpy

skimpy — Sun, 02 Aug 2009 08:07:15 +0000

it’s a bad thing for the other businesses

By: skimpy

skimpy — Sun, 02 Aug 2009 08:06:50 +0000

see NREGS was meant to be an insurance scheme for villagers who don’t get other work.

I agree with you that not everyone gets 100 days of work. but combine this scheme with cheap rice and even 50 days of work will create enough slack in the villager’s pocket

By: skimpy

skimpy — Sun, 02 Aug 2009 08:05:00 +0000

you assume that cost and price are related. they are uncorrelate. price depends on deman and supply, and cost of making only impacts it by impacting supply. if you spend 1000 hours making something and there’s no demand, happy birthday

By: Vijaya K

Vijaya K — Sun, 19 Jul 2009 10:20:02 +0000

Well, I have not analyzed this much from the econ perspective; but what I noticed is that, because rice is available for just Rs.2, rest of the money finds its way to liquor/toddy shops. That is the sad part Just doling out money by means of these schemes does not help much, spreading some awareness about expending it wisely for good cause helps.

By: Varun

Varun — Fri, 17 Jul 2009 03:42:53 +0000

So you mean to say if I get a XYZ LPA pay package, i will stop working for n number of years ? merely because my ‘basic necessities’ are met, for the next n years?
Not that 2 Rs rice is desired, but subsidies are like bad habits, once cultivated they become a necessity, once they become a necessity they transform into basic amenities… one of the ways to solve the problem is to eliminate the bad habit, slowly(no other choice because they are{subsidy} already basic amenities to a lot of people)

By: BoFi

BoFi — Thu, 16 Jul 2009 13:00:31 +0000

Welcome back to econ-blogging Wimpsir!

Have some doubts about the article though. Firstly, why is it obvious that all (or a substantial amount) NREG work is non-essential? Are we really that developed that we can not create enough useful projects that can benefit from it?

Secondly, I just finished reading Harford’s book (on your recco ), where he argues that one of the reasons for China’s boom was that the government froze targets for factories, which could then use the extra available resources to make profit. Why would a similar scenario not apply to the Indian farmers (in the sense that they now are guaranteed a minimum livelihood, and have days where they are no longer concerned to make ends meet and so can earn money for other purposes). Why does it follow that other rural wages must rise? Are you essentially arguing that the Indian rural population, compared to the Chinese, is lazy and not incentivized to make more money?

I guess your argument is more about how to efficiently implement NREG, which I admit seems a difficult problem (although it looks like the govt are putting some fight). Your present argument seems a bit too simplistic though…

By: Mohan

Mohan — Thu, 16 Jul 2009 08:20:29 +0000

Agree with Chevalier. The notion that NREGS gives people enough money to buy rice and other essential commodities and hence they will stop working is flawed. All it means is other businesses will have to pay more than what they are currently paying, which is not a bad thing.