Wednesday, April 23, 2008

Let's Get It Right

The National Rural Employment Guarantee Act (NREGA) was born in February 2006. Even at that time, it was amongst the largest-ever public employment programmes anywhere in the world, promising to provide 100 days of employment to every rural household in 200 of the country's most backward districts. From April this year, it is being expanded to cover all of rural India.

From its very inception, NREGA has generated intense controversy. Its supporters — the various Left parties, NGOs, activists — emphasised its unique feature. For the first time, the rural poor in India would be given the right to employment at prevailing minimum wages. Effectively, NREGA means that the rural poor are no longer at the mercy of the ruling government. For instance, the government cannot plead lack of funds or more pressing priorities to deprive the poor of at least the stipulated minimum days of employment. Its detractors have argued that all government schemes of this magnitude invariably fall very far short of its targets. A large fraction of the money ends up in the pockets of various intermediaries, with the poor getting only a small share of the promised reward.

The debate continues. In the meantime, there have been several surveys evaluating how the programme has functioned in the two years since its inception. Not surprisingly, these reports establish that there has been a great deal of variation in the extent to which targets have been met across different states. It is even less surprising that the reports also establish at least some leakage in even the more successful states.

But, what are the parameters which should guide us in deciding the overall success or failure of the programme? Consider, for instance, the issue of leakages. I came across a newspaper report a couple of weeks ago announcing some modifications to a scheme which reimburses central government officers up to $2,50,00 for educational expenses incurred in studying in approved foreign universities. Presumably, the stint in foreign universities is supposed to endow the officers with skills which they can then put to good use after they return to India. But couldn't they acquire similar skills at a fraction of this cost in one of the IIMs? I need not belabour the obvious — this scheme is a very thinly disguised perk, and is also a leakage.

There must be several other government schemes of a similar nature. Also, newspapers are full of reports of kickbacks in defence purchases which mean that the country ends up buying inferior armaments at inflated prices. But no one says that we should stop purchases of defence equipment because of these leakages. Clearly, there are leakages and leakages — some should be taken seriously, while others can be ignored. But, what are the criteria on which the division is made?

A country that has successfully achieved sustained growth at respectable rates must have extensive social safety nets, particularly when the incidence of poverty is as high as it is in India. It is inevitable that the implementation of these schemes will not achieve perfect targeting — some of the money will flow to unintended beneficiaries. The appropriate topic for debate should be on what is the most efficient channel through which transfers can reach the poor, not on whether there should be transfers.

Many years ago, economist Kaushik Basu wrote a paper entitled 'Beyond roads that get washed away'. If memory serves me right, the background for his article was the Employment Guarantee Scheme in Maharashtra. As the title of his paper suggests, Basu was concerned with the issue of whether rural employment guarantee schemes can generate employment along with the creation of durable rural assets. He pointed out that in order to achieve this twin objective, the non-wage component of the programme has to be sufficiently large. In other words, additions to rural infrastructure also require cement and bricks, and the government has to make adequate budgetary provision for these.

The physical material used in roads that get washed away after the first monsoon is obviously a social waste.

Unfortunately, a couple of the evaluation reports of NREGA emphasise the very poor quality of the rural works that have been created in all the surveyed districts. The "emphasis is more on spending a larger amount of money than on ensuring quality in works execution" is the caustic remark in one of the reports.

Are there alternatives to NREGA? Why can't there be a law which stipulates that the government has to make a minimum monetary transfer to poor rural households every year? If this is a law, then the "right" of the poor to get this transfer will obviously be on the same footing as their right to gainful employment promised under NREGA. An obvious problem with this option is that all rural households will queue up to receive the cash transfers, whereas the relatively richer households opt to self-select out of NREGA.

In other words, the cash transfer scheme will witness some leakage. But, will it be larger than the leakage witnessed in an employment guarantee scheme? What about the saving which will be achieved by not constructing roads that aren't washed away? These are quantitative issues and the only way to settle them one way or another is to try out the cash transfer scheme perhaps on a small scale.


Forget yourself for others, and others will never forget you.

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