MGNREGS less effective in reducing poverty: World Bank

The rural jobs scheme will be cost-effective only if assets created are of sufficient value to the poor, says bank


Households that completed 100 days of wage employment—the minimum guaranteed under MGNREGS—declined by 50% in the last fiscal year, rural development ministry data show. Photo: Indranil Bhoumik/Mint
Households that completed 100 days of wage employment—the minimum guaranteed under MGNREGS—declined by 50% in the last fiscal year, rural development ministry data show. Photo: Indranil Bhoumik/Mint

New Delhi: Unless India’s rural job guarantee scheme can be turned around to create valuable assets, transferring cash directly to intended beneficiaries could reduce poverty faster, the World Bank said on Tuesday, joining an ongoing debate on the effectiveness of the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS).

In its bi-annual India Development Update, the World Bank said that though the rural job guarantee scheme has an inbuilt self-targeting mechanism unlike the cash transfer scheme and has multiplier effects on economic activity, it entails high costs and participants have to forgo alternative income.

“Even though MGNREGS is better targeted than a cash transfer scheme would be, wage earnings alone are not sufficient to make it more cost-effective at reducing poverty. But, it could, if the assets created under it are of sufficient value to the poor,” it added.

A study conducted by the World Bank in Bihar found that compared to a potential reduction in poverty by 14 percentage points because of the MGNREGS, actual impact on rural poverty is only about one percentage point.

Former member of the Planning Commission N.C. Saxena said while cash transfers are a good idea, the job guarantee scheme cannot be substituted by it at present.

“Though the rural job guarantee scheme needs many changes, the cash transfer scheme remains a theoretical alternative at present. There are operational problems with limited access to bank branches and banking services in rural India. Cash transfer schemes need to be tested first in urban India,” he added.

Launched in 2005, the rural employment programme is among the largest poverty alleviation programmes in the world with more than 50 million beneficiaries and expenditure ranging between 0.5% and 1% of the size of the economy.

The Bharatiya Janata Party (BJP), in its manifesto for the general election last year, promised to link MGNREGS, which assures 100 days of manual work a year to at least one member of every village household, to agriculture to improve effectiveness.

Though concerns have been raised about the new government’s commitment to the scheme, it has assured that it will continue the scheme.

In a sarcastic vein, Prime Minister Narendra Modi on 28 February told Parliament that the MGNREGS will never be disbanded because it was a living example of the previous Congress-led government’s mistakes.

The World Bank said the non-wage costs account for about one-third of the public outlay while administrative costs of a cash transfer scheme are lower, particularly if transfers are automated after an identification and financial infrastructure is in place. The bank said the ongoing efforts at convergence of the scheme with other programmes to build a range of assets are steps in the right direction.

The bank also raised concerns about the high level of unmet demand for work in rural areas which makes the scheme less credible for rural labourers seeking work.

According to the National Sample Survey data of 2009-10, 46% of households reported that one or more members of their households would have liked to work on the scheme and only 25% secured any work over the course of the year.

Experts have also raised concerns in recent times over the steep decline in rural population claiming employment benefits under the scheme, blaming it on the administrative bottlenecks that have stifled the programme.

Data available on the rural development ministry website show that in the last fiscal year, households that completed 100 days of wage employment—the minimum guaranteed under MGNREGS—declined by 50%. It was 2.444 million in 2014-15, as against 5.173 million in 2013-14.

The rural development ministry website further reveals that average days of employment provided per household nationally in 2012-13 was 46.2. But, this fell to 39.99 in 2014-15.

Similarly, the number of person days—the number of people getting work multiplied by the number of days of work—dropped from 2.3 billion in 2012-13 to 1.6 billion in 2014-15. The decline was uniform across states.

The budget for the rural employment guarantee scheme declined from Rs.40,100 crore in 2010-11 to a low of Rs.33,000 crore in 2013-14 during the second five-year term of the Congress-led United Progressive Alliance.

In 2014-15, the money allocated for the rural employment programme by the National Democratic Alliance government increased marginally to Rs.34,000 crore; this was further raised to Rs.34,699 crore in the current fiscal, with finance minister Arun Jaitley promising another Rs.5,000 crore, provided funds are available.

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