Are The Changes Proposed To MGNREGA All Wrong?

Are The Changes Proposed To MGNREGA All Wrong?

On the new government’s suggested changes to MGNREGA. Will it have the desired effect or backfire?

By Kunal Singh

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Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) has been the subject of some high-voltage debates between two ideologically opposing groups over the last few weeks. The Rural Development Ministry set the ball rolling by proposing some changes in MGNREGA which, according to them, will make the world’s largest work-guarantee programme less prone to corruption and more conducive to creation of assets. Two of the major changes proposed, which have created a massive uproar, are: 1) altering the labour-material ratio from 60:40 to 51:49 and 2) restricting MGNREGA to only 200 most-backward districts of the country. Following these proposals, groups of economists and activists have petitioned the Prime Minister, Narendra Modi, to refrain from taking such anti-poor measures. Such acts have invoked counter–responses from a different group of economists and policy analysts who believe the government is right to curb the deleterious impacts of MGNREGA on the Indian economy.

It is never easy to appear objective while throwing your hat in the ring amidst such passionate and polarised arguments and I will make no such pretence either. I will, however, try to change the axis of the discourse. Rather than directly speak about whether the changes are constructive or ruinous, I will talk about three broad underlying themes to which almost all the arguments pertain. These three themes are a) corruption, b) principle of self-selection and c) objectives of MGNREGA.

Even the most passionate supporters of MGNREGA cannot deny the rampant corruption that the UPA-designed programme has lent itself to. The argument for continuing with MGNREGA then drifts to attempts being made to curb corruption and the positive results such efforts are showing. Rhetoric is also resorted to by pointing to corruption in diverse government activities ranging from defence acquisitions to telecom licensing. To an extent they are right, but intellectual honesty seems to be suspect the moment many of these same activists oppose  Aadhar-linked direct cash transfers which will plug these leakages substantially.

To put the inefficiency of MGNREGA into perspective, Surjit Bhalla points out the leakage in the current structure of MGNREGA to be as high as 48%. The benefits, taking into account the leakage, reach only 39% of the poor out of which 70% is spent on unskilled wage. Thus, according to him, the intended beneficiaries receive only Rs. 14 out of every Rs. 100 spent in their name. For MGNREGA supporters, the credibility of figures thrown up by people like Surjit Bhalla and Jagdish Bhagwati (who has generously calculated a higher amount of Rs. 20 reaching the poor out of Rs. 100 spent) are suspect. Let me therefore turn to a study done by Accountability Initiative (AI), Centre for Policy Research. It points out that in spite of high expenditure under MGNREGA in a state like Karnataka in the Financial Year (FY) 2010-11, the labour demand met was an abysmally low 36%. The demands met in some states like Tamil Nadu and West Bengal was indeed above 90%, but the figures of 36% in Karnataka, 50% in Rajasthan, 59% in Bihar could be considered unpardonable.

The second theme and the one which has greater significance for me is the principle of self-selection. The resistance to limiting the scheme to 200 poorest districts stems from the reasoning that MGNREGA is based on self-selection and therefore demand-driven. This was also one of the aspects of MGNREGA I liked when it was introduced. If the programme is truly demand-driven, the demands from a richer district will be low and thus it will itself make the programme attuned to the needs of the most needy. In such a scenario, there would be no reason to limit the programme to 200 districts. But alas, the principle of self-selection, albeit laudable, does not operate in a system where the incentives are not properly aligned for its achievement.

The study by AI reveals that in FY 2010-11, the four states of Uttar Pradesh, Bihar, West Bengal and Madhya Pradesh, comprising 59% of the total rural BPL population accounted for only 34% of MGNREGA benefits, while Andhra Pradesh and Tamil Nadu comprising 8% of total rural BPL population accounted for 23% of MGNREGA employment. In other words, the poorer states show a high amount of exclusion error and the richer states show high amount of inclusion error. Ergo, the principle of self-selection has not worked.

Certainly, limiting the programme to 200 poorest districts is not the ideal way to go about it; however it will definitely reduce the inclusion and exclusion errors by a significant margin. The supporters of original MGNREGA are well aware of the fact that self-selection has largely worked only to the detriment of the poorest of the beneficiaries, but they do not provide any alternative solution to what the Rural Development Ministry is offering. Status quo is certainly what they implicitly advocate, but it cannot be accepted in light of the facts we have on the table.

The last theme is the differences in objectives of the programme as envisaged by the sparring groups. The first and the only major objective of the supporters of MGNREGA is providing employment to the rural poor, also evident by the name given to the programme. This is also the reason why the wage to material ratio of 60:40 is so sacrosanct to them. The creation of assets is a close second if not an equal objective to employment provision for the new government headed by Narendra Modi. Therefore, they want to make the wage-to-material more flexible and open to customization by the state governments.

There are two arguments that have been proposed by the supporters of original MGNREGA and both are self-defeating. One, they say that only 27% of the resources so far have been employed on materials (13% less than what still can be) so there is no scope of increasing the expenditure of materials at the expense of wage of unskilled labourers. If that is the case, they should not object to MGNREGA being used in such projects which involve much higher resources on material and skilled labour – thus finally offsetting the lack of expenditure on materials that our experience with MGNREGA has so far shown.  The second argument that they have forwarded is that the proposed tweak in the ratio will require another Rs. 20,000 crore to fulfil employment demands. They completely forget that while more resources would be required to fulfil the employment demands, a considerable amount of resources will also be released by limiting the program to 200 districts.

It is high time that our ideologically blinkered activists and economists begin to pay some attention to evidences that do not support their contention and at least provide an alternative rather than just protecting an unacceptable status quo and stymieing changes proposed by others.

Disclaimer: These views are the author’s personal opinions and have nothing to do with Accountability Initiative or Centre for Policy Research.