India — 05 May 2013

The National Rural Employment Guarantee Act (NREGA) has now been in operation for over three years. It has now been extended to all the rural areas of the country. In a relatively short span of time, it has already become one of the most avidly studied programs of the Central Government.

The National Rural Employment Guarantee Scheme (NREGS) in an important strategy in the current economic context of global economic crisis and slowdown, where raising aggregate demand is a major task for the government. Fiscal policy that provides more wage income directly to unskilled workers in the rural areas is likely to be much more effective in increasing aggregate incomes than other forms of public spending.

Potential of Scheme

It is increasingly recognized that the NREGS has the potential to transform economic and social relations at many levels in rural India. It is this capacity to engender the change that is the source of strength and a weakness for the implementation of the program. In fact, the huge potential of the NREGS has already been evident particularly in the enthusiastic response of the local people, landless, the marginal farmers and women workers in particular, wherever information about the program has been properly disseminated.

The program reverses the way the Indian State has traditionally dealt with issues and envisages a complete change in the manner of interaction of the state, the local power elites and the local working classes in rural India.

The NREGS is therefore completely different in conception from the earlier government employment schemes since it treats employment as a right and the program is intended to be demand-driven. Furthermore, the Act and Guidelines anticipate substantial participation of the local people in the planning and monitoring of the specific schemes, to a degree which has not been at all common.

Obviously, all this will take time to permeate down to the local levels. So, to start with, it is only to be expected that there will be an uneven record of implementation as well as the presence of a large number of problems that require correction. There are bound to be difficulties and time-lags in making local officials and others responsive to this different approach. And of course, the NREGS challenges the prevailing power structures, in some cases quite substantially.
Therefore, attempts to oppose or subvert the correct and full implementation of the scheme in rural areas are only to be expected.

Challenges Ahead

Few employment generation programs have created as much buzz as the NREGS. The NREGS makes it mandatory for jobseekers to have a job card, for which they have to apply to the panchayats (village level administrative body). In return, panchayats are required to provide applicants with job cards within 15 days. The application for the work and dated receipt act as job trigger mechanism. The system is still rough around the edges with many of the states unable to keep pace with the demand for the job cards and provision of the dated receipts.

According to the NREGA website, for the current financial year, 37 million households that demanded employment, the supply side of NREGA is still unable to keep up with the demand. Although there is considerable lag in meeting the set target, the fact that the NREGA has been able to provide jobs and employment to millions of rural households in some of the poorest states in the country is a major achievement. More significantly, it promises to serve millions of households, especially those who are poor.

Many analysts feel that the program is boosting the purchasing power of the rural poor and it has led to a stable income for the rural population.

The most eligible rural families that the NREGA hope to benefit are those of the landless-labors as well as the small and marginal farmers.


NREGA, as it currently exists, suffers from a couple of major drawbacks. First, there is no focus on guaranteeing a minimum quality of assets that are sought to be created through the program. Labor-intensive employment programs are notorious for creating low-quality output.

It is not surprising that village roads that are built by unskilled workers under such schemes are often washed away during a heavy downpour. Thus, the entire program has no lasting value other than providing employment for a specified number of man-days. Second, the emphasis seems to be on providing work opportunities to unskilled labor and no attempt is being made to upgrade the skills of rural youth and enable them to earn more.

NREGA needs to be a support-system for the desperately poor and should enable, encourage and empower them to stand on their own feet.

In its present format, NREGA could become yet another subsidy program that runs the risk of becoming a burden on the national exchequer. NREGA offers an opportunity of introducing the target households to a saving and investing culture that has major implications for future economic growth of the country as well as for the financial security of these households.
About 34% households do have a bank account but the fact is that most of these accounts are inactive. Less than 9% of such households own a life insurance product. NREGA would do well to encourage saving and investing among the households and tie it up with education-related and healthcare benefits. In the final analysis, the challenge for NREGA would be to transform itself into a self sustaining program that benefit the poorest of the poor without becoming yet another subsidy driven program that is a drain on taxpayers as well as a logistic and administrative nightmare.

Getting Your Money’s Worth?

The Comptroller and Auditor General of India (CAG) has pointed out a number of anomalies in the government’s flagship National Rural Employment Guarantee Act (NREGA). Still, the scheme has managed to touch and improve the lives of close to 50 million rural people more effectively than most of the anti-poverty programs in the country. Providing at least 100 days of wage payment to around 30 million eligible families, NREGA has achieved moderate success in two of India’s largest states – Uttar Pradesh and Bihar. Along with successes elsewhere, it has put the country on its way to eradicating acute poverty by 2015, as envisaged under the Millennium Development Goals.

According to data compiled by Ministry of Rural Development, in states like Uttar Pradesh, Haryana, Rajasthan and Odisha, there has been a significant rise in prescribed daily wage rates given to agricultural laborers, following the introduction of NREGA. The average daily manual wage has risen from Rs. 85 two years back to Rs. 100 at present. The states are forced to revise the prescribed daily wage rate as there has been acute shortage of labor in taking up agricultural activities especially during sowing and harvesting periods. CAG has slammed the manner in which NREGA was being implemented in the country. It has categorically accused it of poor record maintenance, delayed payments and nonpayment of unemployment allowance. NREGA has since taken correction steps towards stopping implementation malpractices.

NREGA has also initiated the world’s largest financial inclusion measure by providing poor people access to the formal banking system. The impact of this has yet to be assessed by experts in the field of financial management. Close to 50 million savings bank accounts have been opened with post offices and banks across the country for the payment of wages under NREGA. States like Andhra Pradesh, Karnataka, Uttarakhand, Kerala, Himachal Pradesh have opened savings bank accounts for all the NREGA workers while others like Odisha, Jharkhand, Chhattisgarh, Madhya Pradesh and Rajasthan have made substantial progress in providing banking service to poor rural folks.

While the world debates the adverse impact of climate change, many rural development experts have been describing NREGA as a tool that can help mitigate this problem. According to the latest data, an amazing 3.33 million man days work mostly related to water conservation have been taken up under NREGA. “With such huge number of work focusing on conserving and preserving water, NREGA would definitely impact agricultural productivity in the long run.” Richard Mahapatra, a Delhi based development writer said.

On its part the Ministry of Rural Development has stated that an independent grievance redress mechanism through Lok Adalats (consumer courts) is under consideration. A national helpline to lodge complaints against corrupt practices is also operational.

Increase in Workdays

The Central Government is set to significantly expand the National Rural Employment Guarantee Scheme widely. The Ministry of Rural Development is said to be working towards increasing the number of days of guaranteed employment under the scheme from the present threshold of 100 days a year. Rajya Sabha MP and former governor of RBI Bimal Jalan had also suggested that the number of guaranteed days of employment under the scheme be increased to 120.

Experience shows that rural workers seek employment only in the agricultural lean season or in drought-prone states.

In 2011-12, the average duration of employment per household under NREGS was a mere 32 days. NREGS, launched in 2006, guarantees 100 days of wage employment every fiscal to each household whose adult member volunteers to do unskilled manual work. For 2012-13, the Centre has allocated Rs. 400 billion to the scheme, which currently covers 40.8 million households. The scheme was expanded to cover all 626 districts of the country in 2011-12.

Has NREGS Run Out of Steam?

At the risk of stating the obvious, a major anti-poverty intervention such as the NREGS failure or success depends on the indicators used. Many have debunked this nation-wide program while others have given a strong endorsement on the grounds that it is beginning to transform the lives of the poor and making them better aware of their entitlement.

High Wage Won’t Help the Rural Poor

Rs. 400 billion allocations to NREGS in the budget for the year 2012-13 may be the largest allocation to a poverty reduction program since independence. If taxes are the price to pay for civilization and NREGS-type programs are the cost of getting reformist governments elected then so be it. NREGS, till now has little to do with employment, job creation or skill development. Its primary purpose was to create a safety net for the desperate rural poor. But the budget increase in the wages under NREGS from Rs. 60 per day to Rs. 100 per day takes it to dangerous territory.

Wages in dry land agriculture today are far below this level and no employer would or should (given current productivity) be willing to match this. This means that the government has created an “above market” and “above productivity” wage rate that could distort labor markets by creating incentives to move away from non-NREGS work in rural areas to NREGS work. This could not only retard non-farm job creation but sabotage incentives to upgrade skills and work hard. The safety net could easily become a hammock. This may not happen in near future and the decision could be reviewed but that is unlikely given the labor market program optics that makes them political one-way streets.

If the objective of the new NREGS wages is to accelerate the farm to non-farm transition then it is welcome because of our pathetic agricultural productivity.



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