On 13 October, 28 leading development economists wrote a letter urging the Modi government to avoid diluting the Mahatma Gandhi National Rural Employment Guarantee Act, or MGNREGA (often referred to as a scheme). Judging by the proposed changes to MGNREGA mentioned in the letter, one would be compelled to wonder about the intentions behind the government’s move. Does this government even believe in a scheme like MGNREGA? Because if it doesn’t then it should stop being a hypocrite and summarily repeal the Act. If it persists with the scheme for any number of years with the intention of merely running it aground, then it must be made clear that such a move comes at the cost of thousands of crores of taxpayers’ money spent just because the Narendra Modi government lacked the political chops to do it in one go.

None of this is to say that repealing or even diluting the scheme would be beneficial for the people. In fact, if the Modi government believes in MGNREGA, then the way to improve its efficiency and reduce corruption lies in raising awareness about its provisions among the people, making grievance redressal a real deal and providing timely disbursals when jobs are demanded. Ironically, the call to give up on a scheme like MGNREGA comes at a time when not just global opinion but also hard data is at hand to prove that MGNREGA has helped the poor of India.

On the same day that the government was urged to refrain from subverting MGNREGA, came the Global Hunger Index report by the International Food Policy Research Institute (IFPRI), which highlighted MGNREGA as one of the key reasons why India’s proportion of underweight children (below the age of five) has come down from 43.7% in 2005 to 30% in 2014. The time frame is of significance as it matches with the period during which not just MGNREGA but several other social safety nets were provided for the poor. Less than a week before the IFPRI’s Global Hunger Index came a joint document by World Bank and International Monetary Fund called the Global Monitoring Report. This report detailed how the world failed to achieve 15 of the 21 Millennium Development Goals, decided in 2000, to be achieved till 2015. It also laid out the agenda for the next 15 years. One of the three key goals it stressed on was the provisioning of social safety nets.

MGNREGA is essentially a social safety net provided by the government since 2005. The idea is that rural people who are unable to get a job, especially during a lean agricultural season, may be able to subsist and survive such a phase instead of being uprooted from their homes. This would prevent large-scale distress migration within the country. Such distress migration has a hugely debilitating impact on the wellbeing of all family members—none more important than the nutritional and educational outcomes for young children.

In a way, MGNREGA was an admission by the former United Progressive Alliance (UPA) government that our economy is still far from an ideal situation where there are enough jobs for everyone. It was also an open admission of the gut-wrenching exploitation prevailing in the countryside when it came to minimum wages. MGNREGA’s implementation also coincided with a major push across the country to improve the provisioning of healthcare, nutrition and education. Since the early 2000s, with increasing Supreme Court interventions—such as the appointment of commissioners to oversee the Right to Food—there was much greater stress on providing several basic health, nutritional and educational facilities to women and children. For instance, the Integrated Child Development Scheme (ICDS) was in existence since 1975 but its implementation picked up only after the apex court’s rulings directing the government to not only universalize ICDS, but also scale up the nutritional components.

There were two key safeguards in the way MGNREGA was designed to avoid abuse.

One, it was prescribed that only one adult member per household will be eligible for the scheme, which involved a full day of unskilled manual labour. This was done from the point of view of weaning away underserving people. Barring corruption--and we have seen a fair amount of it--only a family truly in distress will spare a member for this kind of hard labour.

Two, for a day’s work, the individual would get the basic minimum wages, roughly 150. Moreover, any household can avail up to a maximum of only 100 days of work. This was done to ensure that MGNREGA remained a minimum social safety net and did not become a way for people to avoid working for a living.

150 per family (roughly comprising five individuals) per day translates to an income of 30 per person per day. And this income maxes out to 15,000 per year per family since a family can work for a maximum of 100 days. This point should be noted by those who often feel outraged at the low levels of poverty lines in India, such as 30 per person per day.

The cost of this scheme to the country’s taxpayers has been 34,000 crore. This level of budget allocation has stayed this way for a few years now and as such in real terms the allocation has actually declined. This constitutes 0.3% of India’s gross domestic product (GDP).

Is the criticism valid?

It is important to scrutinize the criticism levelled against MGNREGA.

The first criticism is that it is holding back India’s economic growth because the outgo contributes to the fiscal deficit. Yes, it does. The more important point is, by how much. Compare the MGNREGA allocation of 34,000 crore (which, incidentally, is never disbursed fully) to the various subsidies that the critics of MGNREGA enjoy—namely, the fuel subsidies on diesel and LPG, which cost the exchequer roughly 70,000 crore. Or the fertilizer subsidies (without which food articles would be costlier), which comes to another around 70,000 crore to the taxpayer. So which is the bigger dole?

Two, it is holding back India’s economic growth because it has made labour cost very high. The funny bit is that at its peak, ‘high’ would imply the minimum wages in the country. In fact, in as many as 12 states MGNREGA wages are below minimum wages. So the essential argument is that “We are not able to exploit the labour due to MGNREGA." If anything, that is a reason to carry on with MGNREGA. This actually blows the lid off the low-cost production legend of India, which is essentially built on the exploitation of rural unskilled labour. The truth is, if the economy (including agriculture) created enough, even remotely better paying opportunities, no one would enrol in MGNREGA, which at the maximum doles out 15,000 in a year for a family of five.

Three, there is widespread corruption in MGNREGA. True. Just as true as the widespread corruption in our politics, bureaucracy and law and order machinery. Would any of the MGNREGA critics use the corruption argument to disband all the police stations in the country? And, pray, why not? Does it have to do with the fact that in many cases it works, and that even if it is dysfunctional in big parts, it still maintains a semblance of order or else civic life would quickly degenerate into chaos?

Lastly, MGNREGA is making Indians lazy. Really? Only people who have no idea about how the rural poor eke out a daily living can pose this argument. Yes, there will be instances of lazy farmers, but almost always they will be rich farmers who do not line up for MGNREGA. The poorest farmers from, say, Bihar who migrate to the rest of the country, from Kashmir to Kanyakumari, are not lazy. They optimize their time. But often in doing so, their families are displaced, with adverse impacts health and education. They optimize it to such an extent that they would not want to waste even a day of earning by queuing up to get a bank account opened even when it is in their own interest to do so. By the way, some believe we should deposite 100 in their bank account and scrap MGNREGA. You could do that but will doing so make them less lazy?

Shut it or reform it

One can understand if the government believes in the power of the markets to solve all ills, and as such wants to do away with all kinds of doles including MGNREGA. But in such a case, the government must shut down the whole scheme by repealing it and allow for market economics to take over. If not, then the government should reform it, taking steps to bring down corruption and ensure strict grievance redressal.

But running it aground serves no purpose at all.

Policy Puddle runs each Thursday and comments on public policy developments.

Close