By C.J. Kuncheria
CHANDIGARH, India (Reuters) - Sitting at the edge of fields in the heart of India's grain bowl, Gurdayal Singh Malik shakes his head in resignation about the lack of workers needed for his 60-acre farm, blaming the government's flagship welfare program for the shortage.
Ever since the start of the program, which guarantees 100 days of work a year for rural households, the flow of migrant labor to northern Punjab and Haryana states has dropped to a trickle, forcing farmers such as Malik to hike farm wages massively -- and still he cannot find enough workers.
"Laborers used to come every year to the large landholders, asking for work. Now they pick and choose and go about saying: Sardar (master), we don't have time," said the 58-year-old farmer in Kurukshetra in Haryana, 170 kilometers north of New Delhi.
"Four or five years ago, it used to cost 500-800 ($11-$18) rupees to plant an acre of paddy. Last year the laborers took a tenth of the paddy and 3,000-4,000 rupees."
This rise in wage levels and farm costs in rural India is worrisome, with evidence it might be feeding into the high inflation that is the government's biggest economic headache and prompting a hawkish stance at the central bank.
Food and headline inflation remain above 8 percent a year despite nine rate hikes since March 2010, the most in Asia, by the Reserve Bank of India (RBI). Few expect a quick decline.
That persistence points to the limitations of the central banks' aggressive use of its anti-inflationary measures when confronted with structural problems such as labor shortages and supply-chain bottlenecks created by poor infrastructure.
"Much of inflation is coming from structural issues and the inability of the supply-side to respond to higher prices," Laveesh Bhandari, director of Indicus Analytics, said.
"The government is not able to solve these issues, so we have to rely on the RBI to tighten policy ... But everyone, including the RBI, knows this is not going to have an impact in the short term. It'll essentially only slow down growth."
In agriculture, labor shortages could reduce output over time. Farm labor shortages have been reported in places as far apart as the eastern state of Bihar and southern Tamil Nadu.
For years, laborers from the poor Bihar would travel to Haryana and Punjab, where a "Green Revolution" beginning in the 1960s boosted farm production and staved off widespread food shortages in the country of 1.2 billion people.
Now, as the Mahatma Gandhi National Rural Employment Guarantee Scheme (MNREGS) takes root in Bihar, the traditional seasonal migration has declined. Local labor is not adequate and itself is diverted toward MNREGS projects, accentuating the shortage on farms.
"If there aren't Bihari workers, farmers will soon have to give up farming," Malik said.
Rising wages is the latest woe to hit Haryana and Punjab, which produce one-fifth of India's annual rice and wheat output of 170 million tones, but which have seen stagnant yields, declining soil fertility and a depletion in ground water levels.
The country consumes 76 million tones of wheat and 90 million tones of rice yearly, and any shortfall in production will force it to import grains, pushing up global prices.
COSTS VS WELFARE
Costing 1 percent of GDP, the MNREGS is the largest of India's welfare schemes designed to protect the country's 500 million poor who live on less than $1.25 a day. The program has been credited for returning the Congress-led coalition to power in 2009.
Critics say MNREGS is wasteful and riddled with corruption, and the infrastructure created is of shoddy quality.
A recent World Bank study on welfare programs in India including MNREGS said they did not give the "bang for the rupee" warranted from such huge spending.
But mindful of its popularity, MNREGS has been backed by powerful Congress party president Sonia Gandhi. Her son Rahul Gandhi, seen as a prime minister in waiting, personally pushed for expanding it from 100 poor districts to all of the country.
Given the program's support, the government has no plan to recast the system or take up a suggestion that it be suspended during the harvest season or that farm labor be included in the list of works.
Under the program, any villager can go to a nearby government office and enroll for building roads, digging wells or creating other rural infrastructure and be paid the minimum wage for 100 days a year.
That income has helped improve food intake and reduce child labor, especially at times when crops fail or prices shoot up. It has raised rural consumption, which has created new markets and shored up growth when investment has faltered.
But the run-up in farm costs from MNREGS puts pressure on the federal government to raise the minimum support prices (MSP), or procurement prices, for wheat and rice, lifting what is effectively a benchmark for food prices.
Since MNREGS began in 2004/05, the first year of the Congress-led coalition government, the minimum support prices for wheat and rice have risen 1.7 times. Haryana and Punjab also have seen the highest increases in the consumer price index for farm workers.
"That is going to lead to a cost plus food inflation. If costs are going up, I am supposed to be protecting the margins of the farmers," Ashok Gulati, chairman of the farm ministry's commission on prices and costs, said.
Estimating that labor costs to have gone up 60 percent in the past three years, Gulati said it was a challenge to keep up with the rising expenses.
"But if I don't take these increasing costs into account, I'm not doing justice to the incentives of the farmers so the growth process is likely to slow down. So it's a very difficult challenge."
In Punjab, two weeks before transplanting of paddy starts, P.S. Rangi at the Punjab State Farmers Commission anticipates that labor shortages will persist.
"After expenses, there's little for a migrant to take back home. So when he gets an opportunity there, why would be come here?" said Rangi, a former head of agricultural economics at the Punjab Agricultural University.
"But transplanting has to happen. There's no other way, even if it means that school-boys who used to wear shiny clothes and watched from the sides have to shed them and get into the fields."
(Additional reporting by Vikas Vasudeva; Editing by Alistair Scrutton and Richard Borsuk)