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The unimportance of NREGA

NREGA accounts for 0.7 per cent of rural employment,and it explains just 8 per cent of the fall in poverty — growth did the rest

Written by Surjit S Bhalla | Published: July 24, 2013 12:39 am

NREGA accounts for 0.7 per cent of rural employment,and it explains just 8 per cent of the fall in poverty — growth did the rest

As the previous column noted (‘The great growth-dole trade-off’,IE,July 20),poverty reduction in India during the last decade,and especially between 2009-10 and 2011-12,is a very large success story. Poverty was reduced at an unprecedented rate,at about 5 percentage points (ppt) a year; the norm for India throughout its long poverty reduction history is a maximum of 2 ppt a year. So what happened? One explanation is that India had strong growth during this period,a growth exaggerated by the fact that 2009-10 was a drought year and 2011-12 was a good weather year. But weather alone cannot even come close to explaining the extraordinary decline in poverty.

There are only two explanations possible — either there was strong growth that reduced poverty,or the government rights programmes administered and expanded by the UPA helped in the large reduction of poverty. To make it simple,the latter will be referred to as dole. Note also that while there was strong growth,it could have been the case that,as many (including the government) argue,this rapid growth was accompanied by an increase in inequality. If this did happen,then the role of doles in reducing poverty was even greater than conventionally assumed.

Household data are available to rigorously test the different roles of growth,inequality and dole in reducing poverty. The NSS employment and unemployment surveys for 2009-10 and 2011-12 contain detailed information on access and use of the employment guarantee scheme known as NREGA.

First,the role of inequality in reducing or not reducing poverty between 2009-10 and 2011-12 can easily be addressed. Inequality stayed the same during the two years — a Gini coefficient of 0.357 in 2009-10 and 0.359 in 2011-12. The share of consumption accruing to the bottom 40 per cent was 19.9 per cent in 2009-10 and 19.6 per cent in 2011-12. While this is a subject for some later occasion,the remarkable story about real inequality (consumption adjusted for rural and urban prices) is that it has stayed constant since 1983. Indeed,it has marginally improved for the poorest 20 per cent — consumption share of these poorest was 8.9 per cent in 1983 and 9.1 per cent in both 2009-10 and 2011-12.

So inequality change cannot and does not explain the large poverty decline. It is not an exaggeration to state that the UPA government strongly believes that NREGA is an important economic and political tool. It believes that this programme has brought rural prosperity,increased rural wages,brought the Congress increased votes in 2009-10,and will do so in 2014. The table below contains various details about operation NREGA for the two years.

How valid are the NSS data for employment by NREGA? The government claims that in 2011-12,a total of 12.39 crore job cards were issued. According to the NSS,there were 70 million household job cards issued at an average of 2.2 cards per household,yielding a total of 15.4 crore job cards.

The first and most important point to note is that NREGA is a very small programme in terms of rural employment. Work is classified by the NSS according to casual work for public works,and the remainder (salaried,farming,permanent employment,etc). And there are two forms of casual public works programmes — those undertaken for NREGA and non-NREGA public works projects. Some startling facts emerge:

NREGA and wages: Casual work accounts for only 2 per cent of all work undertaken in rural India. And the lion’s share (about two-thirds) is non-NREGA public works. Thus,NREGA itself accounts for only 0.65 per cent of total rural employment. If this is the case,could NREGA be causing the large increase in rural wages that have been observed in the last seven years? It is a question that needs pondering by all concerned,from the government to independent institutions like the CAG and RBI. There is no doubt that rural wages have increased at a rapid rate — but was it NREGA? Could it have been NREGA?

The advocates of NREGA also state that NREGA has helped in raising the average wage-level for unskilled rural labour. If that is the case,then a small tail can wag a very,very big dog,about 170 times its size (NREGA employment is only 0.65 per cent of the rural total). In this regard,it is noteworthy that NREGA wages rose by 25 per cent (just above inflation),while non-NREGA casual work wages rose by 39 per cent!

Only one-fifth of total NREGA work and wages went to poor households,and four-fifths went to the non-poor. While the poor were poor (around the 14th to 20th percentile of rural households),the non-poor were definitely not the transitory poor as conjectured by authors at the World Bank. Those desperate to earn a dole were in the top third of the rural distribution. Did they do back-breaking work? If they did,I have several UPA scams to sell you. Another indication that these non-poor were indulging in “corruption” are the data on their annual jewellery purchases — about Rs 910 per NREGA non-poor household as opposed to only Rs 90 for the NREGA poor household.

Since the NSS data has details on the number of days worked in NREGA,the number of people working,the wages received from NREGA,and average monthly consumption,one can obtain the direct contribution of NREGA to poverty reduction. Incidentally,the question of total NREGA employment was explicit in the 2009-10 survey: “How many days of NREGA employment did the household obtain?” This was inexplicably removed in the 2011-12 survey. Why? What were the NSS authorities,and the UPA government,afraid of? For the purposes of this article,the number of days worked in NREGA was indirectly obtained.

According to official data,NREGA spend was Rs 38,000 crore in 2011-12 and expenditure on wages (that which accrues to the poor) was Rs 25,000 crore. According to the NSS,only about half of this number (about Rs 12,500 crore) accrued to either the poor or the non-poor. And the poor only got Rs 2,500 crore,and the non-poor obtained Rs 10,500 crore.

The table also reports the net effect of the NREGA dole. Poverty declined (according to the NSS employment survey) by 13.1 ppt between 2009-10 and 2011-12; the dole accounted for only 1 ppt of this decline. That is only 8 per cent of the decline. Think about it and conclude fairly: was this dole really necessary to reduce poverty? Can one think of a worse programme for poverty reduction?

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

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