Rebooting the rural jobs scheme

It is now officially acknowledged that the rural economy is heading for a distress situation. As if the fall in crop prices was not sufficient, the situation of farmers in India has been compounded by the vagaries of the monsoon with less than normal rainfall last year along with unseasonal rainfall this year. The government has responded to the situation by raising the compensation and also relaxing the criteria for availing compensation for crop loss.

Even with all this, the relief efforts of the government will at best cover the losses of farmers, leaving out a substantial section of the rural economy, which includes agricultural labourers, along with a majority of non-farm labourers who have been facing hardships due to a lack of demand in the rural economy but also due to stagnation of rural wages since last October. The situation is likely to worsen when the lean season in agriculture starts in a month or so, with more and more agricultural labourers as well as marginal farmers entering the labour market in search of jobs.

The Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) is meant to provide for precisely these kind of situations. While this is the right time to step up spending on MGNREGA, the government also needs to ease some of the bottlenecks that it has created in recent years to allow better functioning of the scheme.

MGNREGA, enacted in 2006 by the United Progressive Alliance (UPA) government in the wake of a severe crisis in the rural economy before 2004, has seen a reversal in fortunes with its performance sliding since 2010.

The scheme, which in 2009-10 generated 2.83 billion workdays and provided employment to 52.6 million households, has only generated 1.63 billion person days in 2014-15, providing employment to 41 million households. While the UPA later followed a policy of benign neglect to stifle the programme, the National Democratic Alliance (NDA) government is no better.

One of the ways this was done was by restricting the fund flow to the programme. Total expenditure on MGNREGA increased from ₹ 8,823 crore in 2006-07 to ₹ 39,377 crore in 2010-11 but declined to ₹ 36,224 crore in 2014-15 in nominal terms. The budget for this year has provided for a little more than ₹ 33,000 crore, including arrears of more than ₹ 4,000 crore, effectively reducing it to ₹ 29,000 crore. This decline in expenditure in nominal terms hides the important fact that this has happened during a period when wages in rural areas were rising at an average of 6% in real terms. Adjusted for wage inflation, the expenditure on MGNREGA has declined from ₹ 25,461 crore in 2009-10 to less than half at ₹ 12,295 crore at 2006-07 wages. While expenditure was clearly insufficient to cover for the increase in wages, the government also moved to freeze MGNREGA wages. As a result, as of now, the wages paid on MGNREGA work is less than the private-market wages in almost all states. At the same time, the administrative expenses have gone up from less than 5% in earlier years to 9% in 2014-15, leaving little for wage payments.

Contrary to popular perception the decline in MGNREGA’s performance was not due to the lack of demand but was a result of a carefully crafted strategy to stifle the programme by burdening it with administrative requirements and delays in fund flow. Our own survey of 328 villages in Rajasthan, one of the flag-bearers of MGNREGA in its early days, clearly pointed to the role of the administrative machinery in restricting MGNREGA. Not only households, which wanted work in the programme, rationed out, but also a delay in wage payments and lower than private-market wages meant that workers no longer saw the scheme as a demand-based programme.

Unfortunately, this is not only the story of Rajasthan but also of most other states. A study in Bihar by Rinku Murgai, Puja Dutta and Martin Ravallion for the World Bank also pointed out that almost two-thirds of workers desirous of working in the programme were rationed out. This despite the fact that most secondary data as well as primary surveys have confirmed the large demand for work among a majority of the rural population.

For example, in Bihar, as well as in Rajasthan, more than 60% of rural population wanted work in MGNREGA. This is true of the all-India level and more so among the poor. The supply-driven agenda was even more obvious given the severe delays in wage payments to the workers. All these together certainly created a situation of “discouraged worker” syndrome with the majority of workers staying away from MGNREGA work—despite the need to supplement family income.

By now, there is ample evidence to show that MGNREGA was instrumental not only in creating employment, particularly among the poor, but also in arresting the fall in rural income in the wake of the severe drought of 2009-10. However, critics of MGNREGA have continued to attack the programme for leakages as well as poor quality of assets created. This has been refuted on several occasions.

A comprehensive study commissioned by the Maharashtra government on the quality of assets created under MGNREGA found that more than 90% of respondents found the assets to be useful and that close to 90% of works actually existed and were taken up.

What is also important, given the crisis in agriculture, is the fact that the majority of assets created as part of MGNREGA was utilized for agriculture and allied areas. At the national level, agriculture and allied areas has accounted for 60% of all MGNREGA works in recent years. Similarly, 75% of works in the Maharashtra study were for agriculture and allied works.

At a time when the rural economy is badly in need of a stimulus, the least that the government can do is to increase spending on MGNREGA. While this in itself will not be sufficient, given the administrative bottlenecks created in the government in recent years, it also needs to be accompanied by relaxing the administrative requirements as well as raising wages to levels above the market rates. This assumes further importance given the sharp cutback in spending on agriculture and irrigation in the current budget, following the award of the fourteenth finance commission.

While this may not fill the vacuum created by the decline in budgeted expenditure on agriculture by the central government, it will certainly help create assets in agriculture as well as income in the hands of manual labourers in rural areas.

Himanshu is associate professor at Jawaharlal Nehru University and visiting fellow at Centre de Sciences Humaines, New Delhi.