It is not surprising that any talk of revamping the Mahatma
Gandhi National Rural Employment Guarantee Act (NREGA for short) brings forth a
deluge of protest from jholawala economists and vested interests. The Left
loves government spends in the name of the poor, regardless of corruption and
unmindful of actual results.
The Modi
government’s proposal to change the spending mix on NREGA from 60:40 (for
material and wages) to 51:49 and to focus the scheme on the 200 poorest
districts (or 2,500 blocks) has brought forth a open letter from 28 “leading” economists to abandon the effort. “Despite
numerous hurdles, the NREGA has achieved significant results. At a relatively
small cost (currently 0.3 percent of India's GDP), about 50 million households
are getting some employment at NREGA worksites every year. A majority of NREGA
workers are women, and close to half are Dalits or Adivasis. A large body of
research shows that the NREGA has wide-ranging social benefits, including the
creation of productive assets.”
This is, of course,
largely bunkum. Nobody needs to deny that some good must have come from spending a massive Rs 2,66,000 crore on NREGA over the last eight years, but even
better results could have been achieved by abandoning the charade of providing
employment at such huge cost and showering this kind of money from a helicopter
in poor areas.
In
fact, the evidence is to the contrary: the money is largely going down the
drain.
As economists
Jagdish Bhagwati and Arvind Panagariya note in a critique of the scheme in The Times of India, NREGA
(after taking corruption and leakages into account) essentially spends as much
as Rs 248 in order to deliver a net Rs 50 per person per day. In other words, the
scheme is highly inefficient even as a poverty alleviation scheme as it takes
nearly Rs 5 to deliver Re 1 worth of benefits to the poor. Would not the poor
have benefited more from direct cash transfers of a higher amount without
hassles and middlemen?
Quite clearly, NREGA
is going the same way as the food subsidy scheme, where too just 12 paise out
of every rupee spent reaches the right beneficiary .
To make matters
worse, state governments are now dragging their feet on implementing the
scheme, which promises one member of a household 100 days of employment every
year, failing which some kind of unemployment allowance is paid by the states.
A report in The Indian Express today (24 October) quotes from the
minutes of an internal review of the rural development ministry on the scheme
as saying that “states expressed their inability to continue the uninterrupted
implementation of MGNREG, given the situation of an overall fund shortage.”
It
is not as if the scheme, even now, is working to full potential. As against the
100 days of employment promised, it has seldom managed to provide even 50
mandays on an average per household per year. Mostly it has been in the
forties. This year, the figure is down to 31.4 mandays per household till
mid-October.
What
this suggests is that both demand (for work) and supply (by state governments)
is weak – raising questions about the viability and utility of the scheme. It is
quite possible that demand for NREGA work may not be as robust as presumed,
thanks to the general improvement in rural incomes with the steady and
increased fund flows to rural areas, which includes investments in
infrastructure and consistently rising minimum support prices (MSPs) for
foodgrain.
If NREGA had been a
big driver of rural incomes, it should have left its impact on food inflation
too, but a Reserve Bank of India study found that MSPs and rising rural wages
impacted food inflation more than NREGA wages. If the scheme had actually had
that big an impact on rural incomes, one would have thought it would have been
a major factor in boosting food prices since only the poorest of the poor opt
for work under NREGA. And the poor spend more of their incomes on food than the
non-poor.
It
is quite clear from all this that NREGA is a costly boondoggle which is not
achieving even its core objectives of providing enough work to the poor and
building durable assets that can increase productivity. If assets had been
built, they should have improved rural productivity and impacted food prices
downwards. And if only 31 mandays of work are being provided against the
mandated 100, it means either the work is not needed or not being provided.
There
are thus three possible remedies now.
First, the centre could
offer to transfer the funds allocated to NREGA in the budget as a direct grant
to states to spend it on any poverty alleviating scheme that works for them.
This would be in keeping with Modi’s federalist thinking.
Second, the funds can be
converted to direct income support to the poorest of the poor using the
Aadhaar-enabled inclusive banking scheme, the Jan Dhan Yojana. Not only will
the money go directly to the poor, but their bank accounts would also start
getting used.
Third, the best option
would be to use the money to build rural infrastructure and assets in the 200
poorest districts where poverty levels are high. This way the projects will
generate real jobs at real wages – and not just pointless work and corruption.
Any
which way you look at it, NREGA has been a disaster. The NDA has to rework it
to get better bang for the buck.
//firstbiz//
