MGNREGA -Way to Inclusive growth and reduced Inequality

Biswa Swarup Misra

After 2000, the Government has tried to make the growth process more inclusive and participatory through various policy initiatives. At the policy level six game-changing interventions have been made in the spheres of livelihood, governance, education, infrastructure and delivery mechanisms for public services.

These will have far-reaching welfare and political economy consequences. The policy initiatives are: MGNREGA (rural job guarantee scheme), Right to Information, Right to Education, Bharat Nirman and the UIDAI. MGNREGA, of all the initiatives, can have the most immediate and direct implications for the welfare of the poor.

Why NREGA?

India does not have a social security system. In an attempt to improve livelihood conditions in rural India, Parliament enacted the National Rural Employment Guarantee Act (NREGA) in August 2005.

The NREGA guarantees at least one hundred days of wage employment in unskilled manual work every financial year to every rural household. The idea is to provide gainful employment during the lean season of agriculture.

The Central government launched NREGA in 200 select districts in February 2006 and later extended the scheme to all of rural India in April 2008.

As a mark of respect to the father of the nation, NREGA was renamed the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) on October 2, 2009. The wages under the NREGA are decided by the Central Government and have also been indexed to inflation since January 2011. A novel feature of this job guarantee scheme is that it is demand-driven and works as an unemployment allowance on the failure of administration to provide employment within 15 days of expression of interest.

The unemployment allowance is a quarter of the wage rate for the first 30 days and half of the wage rate for the rest of the financial year.

Roughly 42 days of employment were provided under MGNREGA in the first five years of its operation.

The Central Government spent Rs 31,000 crore on MGNREGA-related expenses in 2011-12, providing employment to more than 4.4 crore households.

As for misgivings on the huge expenses incurred to operationalise the scheme, it may be worth mentioning that the Government spends around Rs 3 lakh crore on subsidies.

Income Inequality

States are placed at different positions across the income spectrum. An effective MGNREGA should have a sobering impact on income inequality across States. This is because more people from the poorer States should have been opting for MNREGA jobs; besides, wages under MGNREGA have increased significantly in the past five years.

If we compare the Gini coefficient, which is a summary measure of income inequality across States before and after the introduction of MGNREGA, we get some idea in this respect.

The Gini coefficient for income has fallen marginally for the 17 general category States, from 0.279 in 2007 to 0.275 in 2012.

Benefits from MNREGA have not accrued as much to the poorer States as to their richer counterparts. For instance, employment generated in terms of average person days per household was marginally higher for the six poorest States, compared with the richer States in 2009-10.

The average poverty ratio for Bihar, Chhattisgarh, Jharkhand, Uttar Pradesh, Orissa and Madhya Pradesh, at 42 per cent, went hand in hand with the average person days of employment generated at 48.

This is in contrast to the other 11 States, where the poverty ratio, on an average, was 20 per cent and the average person days of employment generated was 46. This brings out the ineffective implementation of MNREGA in the poorest States.

The only consolation is that inequality has been maintained at around the same level, even after a fall in growth following the global financial crisis.

Implementation is key

MGNREGA, if implemented successfully, can create a virtuous cycle of higher consumption and higher growth. However, it can as well lead to a vicious cycle of high inflation and lower growth in the absence of an adequate supply response.

Persistently high inflation has been the major driver of economic distress in the past three years.

The MNREGA is often blamed for this high inflation, as the money spent on the programme has not led to the necessary asset creation.

There is one school of thought which argues that the introduction of MNREGA has put pressure on the rural labour market and made agriculture an unprofitable occupation.

This school argues that it might be a better idea to just dole out the funds without keeping people engaged in unproductive work, as that will release some additional labour which can help ease the pressure on rural wages.

Another school of thought argues for enrolling the potential beneficiaries in different skill development training programmes by paying a stipend, which otherwise would have been disbursed as wages. Learning skills would enable the poor to gain access to a sustainable livelihood.

The introduction of MNREGA was a game-changing initiative to promote welfare. Many studies have revealed corruption associated with implementation of MNREGA. Whatever its design, implementation in the true spirit can work as a great boost for Indian society and economy.

The poor implementation of MNREGA puts serious question marks on the competence of the administration. MGNREGA and UID are progressive and gigantic initiatives, which will test the competence of the bureaucracy.

(The author is Associate Dean, Xavier Institute of Management, Bhubaneswar.)