No proof required: PDS or NREGA, corruption must go on

No matter what in-the-name-of-the-poor scheme you cook up, the poor get less than 15 per cent

Written by Surjit S Bhalla | Updated: November 1, 2014 12:18 am
The PDS facts are as follows: 50 per cent of the food disappears, and the poor receive only 24 per cent of the food that reaches the ration shop. (Source: Reuters) The PDS facts are as follows: 50 per cent of the food disappears, and the poor receive only 24 per cent of the food that reaches the ration shop. (Source: Reuters)

There are several reasons why the case for retaining the NREGA employment system, as argued by 28 of India’s leading economists, should be dismissed.

First, India’s leading economists are likely to be just plain wrong, and naïvely so, in their assessment of the worth of the NREGA. While this job provision programme has been christened the Mahatma Gandhi NREGA, I feel it is important to not besmirch the Mahatma’s memory with such a corrupt programme.

Evidence suggests that India’s leading economists have generally been on the wrong side of economics and economic history. When the developing world, especially in East Asia, began changing course in the early 1960s, many of India’s “leading” economists stayed behind — and behind enough to cheer political moves like the Emergency and economic views like bank nationalisation etc. No prizes for guessing that the dominant view of India’s “leading economists” (hereafter ILE) back in the 1960s was in favour of heavy state involvement in the affairs of the economy.

Though much has changed in the world and in India, the ILE view has remained broadly the same — with minor adjustments. The ILEs are not so brazenly left that they support import controls or industrial licensing — but they are left enough to support “dole economics”, or massive government intervention in the name of the poor (though not necessarily for the poor). For them, it is enough to stop all debate with the simple comeback line — yes, corruption is high, yes, there are problems of delivery, but at least some money reaches the poor. In their letter, the ILE state: “Recent research also shows that corruption levels have steadily declined over time… While corruption remains a concern, experience shows that it can be curbed…” I guess corruption, like beauty, is in the ideology of the beholder, or the economist.

It has been documented by several researchers (also see my article, ‘1960s thinking on poverty, only in India’, IE, July 18) that the public distribution system (PDS) of foodgrains is one of the most corrupt public delivery systems in India and perhaps the world. The extent of PDS corruption has been openly acknowledged by every government in power, including the UPA government. The magnitude of the corruption involved is mind-boggling even for those more knowledgeable about these matters, for example, Fifa and the BCCI. In the July 18 article, I documented that the poor (Tendulkar poverty line) in India received only 12 per cent of the money spent in their name. Further, about 50 per cent of the foodgrains allocated to the PDS just disappears into thin air — that is,  half of the foodgrains that leave the godowns of the Food Corporation of India (FCI) never reach any ration shop. Think of it as black money generation of about Rs 60,000 crore a year.

This black leakage has been supported by every consumer expenditure survey undertaken by the NSS over the last 30 years. However, the government, in the form of the FCI, claims that there is zero leakage every year and it has its official website to prove that it distributed 50-60 million tonnes of foodgrains every year to the ration shops! The fact that only 30 million tonnes actually reached the ration shop is not of much concern or relevance to the FCI.

But, somehow, the NREGA is supposed to be different and subject to very little corruption. Why? Because defenders like the ILE state that the NREGA involves back-breaking manual work and is therefore self-selecting — only the poorest of the poor would take up a NREGA job. This assumes that in order to receive money for “back-breaking” work, you actually have to break your back, or even be there. Unfortunately, that is not the case. Calculations identical to those undertaken in PDS evaluations show that, far from having low leakage, the NREGA programme is possibly even more corrupt than the PDS system. These calculations are based on the NSS 2009-10 labour and employment survey, a survey that contained special and additional questions meant for monitoring and evaluating the NREGA programme.

Some basic results: the ministry of rural development website claims that in 2009-10, 284 crore man-days of work was provided to 5.26 crore households. The NSS survey indicates that 3.86 crore households worked on the NREGA for 147 crore workdays. Leakage — about half (48 per cent), and near-identical to that of the PDS.

But the similarity does not end there. The PDS facts are as follows: 50 per cent of the food disappears, and the poor receive only 24 per cent of the food that reaches the ration shop. So, out of every Rs 100 spent on the PDS, the poor received 12 per cent.
In the case of the NREGA, 48 per cent of the jobs accrue to nobody (compare that with 50 per cent of disappearing food). Of the jobs actually provided, the poor receive 39 per cent. Thus, out of every Rs 100 spent on NREGA, the poor receive (0.52×0.39) or Rs 20, some
Rs 8 higher than the PDS. So the NREGA is quite corrupt, but more “efficient” than the PDS? Not so fast. Thirty per cent of NREGA expenditures are capital or non-wage expenditures. Thus, the workers receive only 70 per cent of total expenditures, and poor workers receive Rs 14 of every Rs 100 spent in their name. A new identity for the ILE — no matter what scheme you cook up, the poor get less than 15 per cent.

When the 28 ILEs wrote the letter, the ministry of rural development, the ministry in charge of delivering the NREGA, was quick to respond. In an internal note (but nothing is internal in this web world), it denounced the perpetrators of the letter as individuals seeking to protect their revenue stream, never mind the ideology: “In spite of clear evidence of rampant corruption at various places, the scheme continues to be presented as a successful scheme. This, perhaps, is due to a solid network of vested interests involving political party functionaries, government officials, NGOs, research institutes and experts desirous of milking the scheme to their advantage.” In my many years of observing policymakers and policy statements, I have yet to come across such a frank and honest assessment of the tribe to which I belong. Congratulations to the ministry of rural development for nailing it.

A more public airing of this PDS-NREGA comparison presented itself last week, when NDTV Dialogues anchor Sonia Singh invited me for a genuine debate on the NREGA, more so since former rural development minister Jairam Ramesh was part of the panel. But 15 minutes before the show was to begin, I was told to go home since Ramesh had cancelled his appearance. I returned home, only to learn later that Ramesh had miraculously appeared at the TV studio, ready to do the show, with all the pre-scheduled panellists present sans me. The show, and ideology, and corruption, must go on.

The writer is chairman of Oxus Investments, an emerging market advisory firm, and a senior advisor to Zyfin, a leading financial
information company