Going back to the farm is an indulgence that urban professionals who have made their millions can afford, but such a trend worries us when it involves the poor. And that is just what the National Rural Employment Guarantee Scheme (NREGS) seems to be doing. Here’s why.
Economic development necessarily involves the movement of people from low-productivity to high-productivity jobs. In most countries, this means that the millions trapped in dead-end farm work move into cities where they get jobs in modern manufacturing or services. That is what happened in Taiwan, South Korea, Thailand and many other countries in the region. Average incomes rise only when average productivity rises—it is as simple as that.
Illustration: Jayachandran / Mint
However, the rural jobs scheme creates perverse incentives for poor villagers to stay behind to earn a guaranteed basic income for 100 days a year rather than take the risk and venture out to seek more productive employment. Mint reported on Thursday from Bhilwara in Rajasthan that fewer people are moving out, thanks to the money offered by NREGS. A businessman participating in a roundtable organized by this newspaper in Bangalore on Monday complained that workers have moved back to their villages. Farmers point out that NREGS effectively puts a floor under rural wages, leading to labour shortages during harvest time.
The jobs scheme does offer some sort of income support to the poor, at least the money that gets through to them after the pilferage by local elites. The United Progressive Alliance believes that NREGS helped it win the 2009 elections. There is a growing chorus of voices from the voluntary sector that suggests that this scheme can do no harm. In short, NREGS has become a holy cow that cannot be questioned.
This newspaper continues to be critical of many aspects of the scheme. But our most significant worry is that it creates perverse incentives against seeking jobs in modern sectors. We believe that true inclusive growth can only be attained through job creation outside agriculture.
The ruling alliance loves to talk about inclusive growth even though it does little to help create new jobs through building infrastructure or reforming labour laws. Instead, the government is spending thousands of crores of rupees on a scheme that is likely to harm the shift of labour into the modern economy.
Is NREGS an obstacle to modernization? Tell us at email@example.com