Photo: Pradeep Gaur/Mint
Photo: Pradeep Gaur/Mint

Allow ‘surge’ in MGNREGA jobs

Since the demand for rural works is highest in pre-monsoon months,the budget money needs to be released now

India legislated a historic right to work for rural folk in 2005. This is the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA). Initially restricted to only the most backward 200 districts, the work scheme was soon extended to the whole country. It guarantees 100 days of work to one person per household, on demand. This “guarantee" has rarely been legally tested in court. Right to work or livelihood is not a fundamental right, but is enshrined in the Directive Principles in the Constitution of India. MGNREGA built on the experience of many predecessors, most notably Maharashtra’s Employment Guarantee Scheme (EGS), which originated in the drought of 1972. Providing work opportunity as drought relief is an age-old concept. For instance, the prominent monument Bara Imambara of Lucknow was constructed between 1785 and 1791, as a project funded by the Nawab to provide employment during a devastating famine that lasted several years.

Maharashtra’s EGS has been funded by a tax on urban salary earners (called profession tax). MGNREGA is funded by the Union budget, and administered by village councils (panchayats). The current provision is about 2% of the total budget, or 0.3% of GDP. The idea of providing work as drought or famine relief is that purchasing power in the hands of wage earners is more effective than trucking in foodgrain. Private traders are more efficient in responding to demand (voiced through wage earners) than bureaucracy. Maharashtra’s early success in EGS demonstrated this concept very well. Sometimes, however, payment in kind (that is, foodgrain) is better than in cash, especially if markets aren’t functioning well.

The most attractive features of MGNREGA are that, first, it is self-targeting. Only those who really need work will show up. That’s because the work requirement is hard and back-breaking. Second, it works like unemployment insurance in the absence of a formal government-provided arrangement. Third, it empowers women, since their participation has been consistently close to 50%, even in Maharashtra’s EGS. Fourth, in an indirect way, it might contribute to reducing the stress of urban migration. Fifth, if properly planned and implemented, it can create rural assets and public goods. It must be noted that the creation of assets is, at best, a secondary objective of MGNREGA. Sixth, this work entitlement acts as a proxy for genuine land reform, and also increases the bargaining power of labour.

There have been many detractors of MGNREGA, less on conceptual grounds, but more on its implementation failures. There are stories of fake muster rolls, ghost work sites, payment to workers for no work, corruption and leakage in payments and so on. Much of these can be taken care of with better audit processes and other fixes. For instance, direct payment into workers’ bank accounts can and does reduce leakage considerably. Public display of beneficiaries, social audits and community monitoring has reduced the problem of fake muster rolls considerably. The more principled objection has come from the fact that the scheme is a labour market intervention, skews incentives and is distortionary.

In 2011 and 2012, when rural wages were rising at double-digit rates, there was a common refrain about MGNREGA leading to labour shortages and wage inflation. Those sectors that depended on seasonal and migrant labour, typically from states like Bihar, Jharkhand and Odisha, such as construction, sugarcane harvesting and textiles, complained that MGNREGA was a deterrent to dynamic migration. The fact is even at peak time, MGNREGA provides less than 2% of total work. Most households don’t get even 10 of the 100 days of work guaranteed by law. But that, it seems, is enough to influence both wages (through a price floor) and labour availability. This latter point is quite debatable, but the fact is that MGNREGA has been a bogey used by everybody, including politicians.

At a time when many districts in the country are facing an acute drought, the relevance of MGNREGA is heightened. The surge in demand for rural works is highest in pre-monsoon months, when rivers and wells are parched, and there is shortage of drinking water, fodder for cattle, food and employment. The economy is also facing a drought of jobs, as job creation in eight key industries has declined sharply. This may well be a transitory phenomenon, and a good monsoon, along with aggressive public spending on infrastructure, can turn the sentiment later in the year.

Hence, it is imperative that a “surge pricing" mindset be applied to implementing MGNREGA, now, in the summer months. The estimated requirement of funds is 50,000 crore, but the Union budget has under-provided. That money needs to be released now (in a “surge") rather than later, when demand for work slackens. It may also be a good idea to tweak and reform MGNREGA to allow private-sector participation. Garment firms, construction projects and farms should be allowed to give temporary employment and count it towards MGNREGA. Some projects of different departments such as public works, forestry and irrigation can be dovetailed and employment provided through MGNREGA. We need a holistic approach and not one hampered by inter-departmental turf issues.

MGNREGA is the world’s largest publicly sponsored employment programme, lauded even by the World Bank as “a stellar" one. Undoubtedly, there are implementation weaknesses. But unlike developed countries, we don’t have proper unemployment insurance, nor do we have a well-developed labour market. Hence, we need MGNREGA as a key instrument. Its success will be the day it becomes redundant. Until then, let’s fund it well and improve its functioning.

Ajit Ranade is chief economist at Aditya Birla Group.

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