Photo: Priyanka Parashar/Mint
Photo: Priyanka Parashar/Mint

Basic income may be better than MGNREGA

Once the negative welfare from work is accounted for, then a basic income guarantee (untargeted cash transfers) would be the better policy option than MGNREGA

Mumbai: Since its inception in 2005, the Mahatma Gandhi National Rural Employee Guarantee Act (MGNREGA) has been the subject of both intense political and academic debate. However, all these debates may have missed an important point.

A new study by Arthur Alik-Lagrange of World Bank and Martin Ravallion of Georgetown University contests that the prevailing research on the impact of employment guarantee schemes such as MGNREGA on welfare generation do not account for the nature of the work involved. The authors highlight that MGNREGA and similar workfare schemes in poor countries deliberately offer physically demanding manual work to target the poor who have no other source of income. Including the welfare costs of this unpleasant work changes the impact assessment of workfare schemes.

Combining MGNREGA data with National Sample Survey data from Bihar (collected from 3,000 households), the study estimates the welfare loss from the nature of MGNREGA work. While several evaluations have shown MGNREGA to increase welfare, including this negative welfare effect could significantly lower MGNREGA’s impact.

A paper previously featured on Snap Fact argued that MGNREGA’s unpleasant work, which acts as a self-targeting mechanism, makes it a more efficient and cheaper programme compared to untargeted cash transfers.

While Lagrange and Ravallion agree with the cost efficiency rationale behind programmes such as MGNREGA, they argue that policy preference changes once evaluations internalize the welfare loss associated with the nature of work. They argue that once the negative welfare from work is accounted for, then a basic income guarantee (untargeted cash transfers) would be the better policy option.

They recommend that MGNREGA should generate sizable indirect benefits to participating workers through assets created or through empowerment benefits to outperform basic income schemes. More recent data suggests that MGNREGA could be achieving some of these empowerment benefits. A new survey by the Reserve Bank of India (RBI) shows that rural households across six states surveyed preferred working under MGNREGA to traditional labour mainly because of payment parity among genders.

Also read: Workfare Versus Transfers In Rural India