The much celebrated NREGA is attracting bouquets and brickbats. Although the programme is good it needs to be sound tuned to make it effective and reachout to the real beneficiaries. Indirectly it is also creating a lot of problems for the land owners and labour market in rural areas because of the free money given by the government in NREGA. All the complaints must be looked in and adequate actions must be taken at the earliest.
The suggestion to provide to cash transfer is fine. But the programme itself must be checked and balanced so that it won't affect the wider social changes. We cannot completely gurantee corruptionless NREGA even in the cash transfer method.
Arvind Panagariya writes in The Times of India (19 September 2009)
Economic reforms that helped produce sustained rapid growth during the last two decades have cut the proportion of the rural population living below
the poverty line from 46 per cent in 1983 to 28 per cent in 2004-05. Nevertheless, 4.4 crore households (assuming five members per household) in rural India still live in abject poverty and must be provided relief while the growth process works its way to pull them out of poverty as well. This is the spirit in which the government launched the National Rural Employment Guarantee Scheme (NREGS) in February 2006. The scheme guarantees 100 days of employment to one adult in each rural household at the statutory minimum wage.
According to an important result in economics, pioneered by economists Jagdish Bhagwati and late V K Ramaswami, the least costly way to achieve an objective is to employ a policy that directly targets it. Indirect policies may achieve the objective but impose costs elsewhere in the economy. Accordingly, the least costly policy to give immediate relief to the poor is direct cash transfer to them, not NREGS. Today, advancements in information technology make such transfers by the central government directly to poor rural households a feasible proposition.
If the direct transfers approach were adopted, expenditures worth Rs 39,100 crore, allocated to NREGS in 2009-10, could transfer Rs 10,000 each to the bank accounts of 3.91 crore rural households. The transfer would give the households income worth 100 days of employment at Rs 100 per day - the cap currently under consideration on NREGS wages. The number of beneficiary households under cash transfer would come within hair's breadth of the total number of poor rural households in India. In comparison, only 2.6 crore households sought any employment under NREGS in 2008-09. Of these, a paltry 53 lakh earned full 100 days worth of wages.
Why only a small fraction of expenditures under NREGS reaches the targeted beneficiaries is not hard to understand. The cash must flow through an elaborate bureaucracy before it reaches the beneficiaries. The delivery system consists of several layers of administration: central employment guarantee council at the Centre, state employment guarantee council in the state, district panchayat in the district, intermediate panchayat in the block and finally gram panchayat in the village. Public works must be designed and approved by the appropriate authority, financial resources delivered to the body responsible for the project and materials secured before employment can be provided. Each transaction at each stage offers opportunity for bribes.
The projects in turn require material resources and skilled workers. NREGS itself stipulates a wage-material ratio of 60:40 where wages include salaries to skilled workers. This means effectively only approximately 50 per cent of the expenditures are left for the targeted beneficiaries. In practice, the wage expenditure has ended up being even less than 50 per cent of the total expenditure. In Jharkhand, ratios as low as 12 to 24 per cent have been observed. In Bihar, works were abandoned midstream because expenditures on materials exceeded the stipulated limit.
Advocates of NREGS would no doubt argue that it creates public assets. But there are at least three problems with the argument. First, absent the need to transfer purchasing power to the poor, would we have still wanted to use scarce government resources to build these assets? Second, even if yes, is this the most efficient way to create public assets? Finally, a recent assessment of NREGS by the National Council of Applied Economic Research notes that, while very little information on the quality of assets is available, what is available is not encouraging. Ponds have been dug in areas with scanty rainfall, large sums of money have been spent on digging ponds without conceptualisation of factors such as catchment area and sources of recharging, roads have been built that have no chance of surviving the rains and expenditures have been incurred on non-existent projects.
Under the cash transfer scheme, the beneficiary household is left free to sell all its labour for wage employment. Under NREGS, the benefits of labour of the participating member accrue to someone else. Indeed, in so far as it permits the participants to be assigned to the private farms of others, the scheme has a regressive element in it: those with some land get the landless to work free of charge for them. This regressive element recently came to the fore when the government quietly attempted to expand the list of those eligible for free NREGS labour to include farmers with as much as five acres of land. The attempt rightly led influential activists Aruna Roy and Nikhil Dey to cry foul, forcing the government to hold back the change.
Cash transfers have the advantage that they do not distort the labour market. NREGS has effectively led to a withdrawal of a section of the labour force to work on projects of uncertain value. This has naturally led to an inefficient increase in the wages that hurts agricultural activity of those who rely on hired workers, including small and marginal farmers who survive on small margins of profits.
The writer is a professor at Columbia University.
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