A soured fourth birthday party

A soured fourth birthday party

You invite your friends to play football. They come, snatch the ball and start playing on their own. Imagine your dismay that your friends did that to you. Two days ago, Jean Dreze and Aruna Roy, two champions of the National Rural Employment Guarantee Scheme (NREGS), experienced a similar emotion when they boycotted its fourth anniversary. Today, NREGS is at the centre of an enjoyable football game.

The United Progressive Alliance (UPA) government, however, celebrated the event with gusto. The Prime Minister and the UPA chairperson did sound a note of caution, but that was only an aside.

The celebration was not the reason for Dreze and Roy’s angst. They are concerned about a different set of issues. It’s a long story, but a short version runs like this. NREGS is an entitlements-based programme. That means you ask for work and you get it. To minimize extraneous expenditure on administration and contractors, construction based on contracts was, initially, banned. Now, as the scope of NREGS has expanded, this has been allowed. This, Dreze and Roy feel, has opened the gates for corruption.

There is also the issue of a wage freeze for workers. Dreze, Roy and other supporters of NREGS have argued that with rising prices, this erodes real wages and that capping of wages is bad policy.

They are wrong on both counts. Consider construction first. NREGS was meant to allow rural workers to construct economic assets. These would have, in theory, permitted the programme to be sustainable. In practice, quality has never been a concern. This has turned NREGS into a 21st century version of Keynes’ “dig-ditches-get-money" scheme. If construction of buildings is allowed, it will lead to creation of something durable. The trade-off, of course, is the entry of contractors. That will certainly lead to corruption. But in its absence, there will be nothing more than digging and filling of ditches.

The case of the wage freeze is more interesting. Historically, inflation has been less of a concern with the Left. Its emphasis has been on unemployment. But as economists know well, the trade-off between inflation and unemployment is illusory. Dreze and Roy awoke to this reality only after 43.9 million person days of employment under the programme. That went a long way in fuelling double-digit food inflation. There’s nothing new here. Human nature being what it is, one feels the pain when it is inflicted on one’s self. The pain of others—well, that’s their problem.

NREGS: more of a problem than a solution? Tell us at views@livemint.com