MGNREGA
CACP report:
What is MGNREGA’s nature? Is it an investment
policy or a welfare scheme? Since the inception of
MGNREGA in 2006, it is claimed that almost 51 per
cent of its expenditure has been on works related to
water conservation & irrigation and over 19 per
cent on works related to rural connectivity. In its
present form (as revised in 2010), the Act allows
works such as irrigation, horticulture, land
development, on private land of small and marginal
farmers which implies a coverage of 40 per cent of
all cultivated area (80 per cent of all land holdings).
But what has been the impact of these expenditures
on say agri growth is not very clear.
Now that the scheme has been in operation for 7
years, is there a way to make it more productive
and less dole oriented? One of the ways to do this
could be that MGNREGA operations could be
dovetailed with agricultural operations, wherein
say half of the current market wage rate is paid by
the farmer and the other half by the Scheme:
- This would help agriculture labour to earn
more than what MGNREGA offers
- Will also help the farmers save on labour costs,
while simultaneously ensuring that the labor
remains productive
- Higher labour productivity, with contained
labour costs for the farmer, will help moderate
the ‘cost-push’ factor in food inflation. So it can
be a win-win situation, and can be coordinated
through panchayats
Current Status:
The last year (2014-15) has turned out to be worst
year of the scheme since its inception in terms of
the average number of days of employment
provided to each household. The average days of
employment provided per household in 2014-15
were only 39.2, significantly lower than in 2013-14
when the figure was 46. The scheme’s poor
performance in 2014-15 was largely a supply side
problem. Fund constraints and delayed release of
funds to states meant no proper planning could be
done at the local level, leading to a paucity of work.
In 2014-15, the NDA government slashed the
budget of the scheme from Rs. 34,000 crore to Rs.
31,000 crore.This year, it’s been hiked to 34,700
crore, with promise of 5000 crore more if tax
buoyancy is good.
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Dilip Mookherjee’s article
Under MGNREGA, each rural household is entitled
to 100 days of work per year, at a guaranteed
minimum wage, to be provided within 15 days of
application (failing which the household qualifies
for unemployment benefits) and within 5 km of the
household’s residence. Gram panchayats are given
the responsibility to administer the projects, which
typically involve construction of local infrastructure
aimed at providing water security, soil
conservation, flood control and raising land
productivity. The projects are required to be
decided following Gram Sabha meetings. A 60:40
split between labour and material costs is
mandated.
The scale of MGNREGA is staggering: it provides
employment to a third of India’s rural
population (about 50 million households annually,
at an average of 42 days per year), at an annual
cost of about 0.3-0.4% of GDP (about $6.2
billion).
Critics argue that MGNREGA is responsible for high
fiscal deficits, inflation, and slowdown of growth.
Supporters argue the programme has succeeded in
reducing rural poverty, building infrastructure and
strengthening local governance.
Implementation
Wide variations across states: lower income
states with limited administrative capacities
have tended to lag noticeably behind five ‘star’
states (Kerala, Tamil Nadu, Rajasthan, Himachal
Pradesh and Andhra Pradesh (AP))
Less than half the rural population was
aware about the work-on-demand feature, and
less than a fifth of their unemployment benefit
entitlement beyond the 15 day waiting period
Gram Sabhas are held infrequently, with low
participation rates
There is substantial rationing: 19% sought
work but did not get employed
A lot of the employment tends to be provided in
the spring (slack) season, because it becomes
difficult to undertake construction projects
during the monsoon, and Gram Panchayats do
not want to create labour market shortages
during peak harvest seasons
Non-issuance of dated receipts, non-payment of
unemployment allowance, payment of less than
full wages, and especially, delayed payments
Some studies have shown evidence of leakage
of funds from the programme ranging from 5-
40% in different states
Anti-poverty impact
A rise of daily wages of approximately 5% that
can be attributed to the programme
Corresponding positive effects on food and non-
food consumption, calorie and protein intakes,
and on savings
Rural-urban migration rates have dropped,
owing largely to reduction in ‘distress
migration’, and urban unemployment rates fell
by 7%
Child labour fell by approximately 10%
These benefits were typically larger for lower
castes, illiterates and women.
A 50% drop in poverty - for the most vulnerable
sections of the population (Scheduled Castes
(SCs) and Scheduled Tribes (STs)) during the
slack season
The stronger safety net was accompanied by a
move out of employment to self-employment
and non-agricultural employment for males,
while women’s labour force participation rates
rose
Macroeconomic effects
Broad assessment is that NREGA had relatively
little impact on macro aggregates, compared to
other key determinants
The adverse macroeconomic events set in only
after 2009-10, by which time MNREGA had
already been fully implemented
Slowing of growth rates owe to many different
factors, such as ‘policy paralysis’, problems with
environmental clearances, land acquisition,
recession in the world economy, appreciation of
the real exchange rate, and fiscal and monetary
contraction since 2010
The rise in inflation is also a post-2010
phenomenon, especially marked in food articles
such as milk, edible oils, sugar, fish and
vegetables in which rising rural wages are
unlikely to have played an important role
Conclusion: Safety net for the most vulnerable, but
poorly implemented
Summing up the evidence, what seems most
striking is the effect of MNREGA in providing a
safety net and reducing poverty for the most
vulnerable sections of the rural population. With
regard to targeting success, it beats hollow the
other big-ticket subsidy items in government
budgets - food, fertiliser and petroleum
subsidies, each of which account for 0.8% of
GDP, and benefit mainly the middle class rather
than the poor. A leakage rate of 30% or less seems a
lot better than the sometimes 90% leakage rates
associated with food subsidies in India.
