India needs a sound anti-poverty scheme. Dozens of programmes, such as the Minimum Support Price (MSP), the fertiliser subsidy or the LPG subsidy, are well known for failing to deliver money to the poor, and should be discontinued. Employment guarantee (EG) programmes are the only mechanism known today, which target the poor more effectively. Closing down existing programmes, and building a well-run EG intervention, is feasible at no fiscal cost.The EG has three strengths. It is self-targeting: rich people do not like to do manual labour to earn a low wage. It is self-adjusting: fewer people come to an EG programme when (say) the harvest drives up demand for labour. And most important: EG is self-liquidating. In a prosperous region, there would be no takers, and the EG programme would die a natural death.At the same time, the design of an Employment Guarantee Act must address legitimate concerns about corruption in employment generation schemes. Given our multi-decade experience with various arms of government, there is well justified scepticism about EG schemes. The expenditure on schemes like food for work and SGRY does not tally with the employment generation figures available. Sceptics consequently argue that the EGA should be abandoned, because we do not have proper mechanisms in place to deliver such schemes.The key design feature which will make a dramatic difference to the outcomes is how the wage is set. EG can be thought of as an MSP for labour. As with MSP, if the price at which the government is buying is set too high, it can do tremendous damage. If the wage in an EG programme becomes the floor on the labour market, and if this wage is set too high, then unemployment would go up.If wage setting for the EGA is politicised, or controlled by committees that do not know economics, then considerable damage can come about. Right now, a plausible value appears to be Rs 40 per day. At this price, an EG programme would attract negligible interest in prosperous states — as should be the case. If an EG programme runs with such a price, and uses inflation indexing using the GDP deflator, then our fond hope should be that in a period of roughly 10 years, India’s growth should drive the programme to extinction, since roughly nobody in the country would want to work for Rs 40 a day in year 2015.At the same time, such a programme is worth doing for the 2005-2015 period, since it simultaneously offers an opportunity to close down distortionary schemes such as the fertiliser subsidy or the LPG subsidy, and it offers an opportunity to sharply reduce the poverty rate right away.The second set of issues concerns implementation. I recently visited a remote village in Orissa, largely populated by tribals, with a poverty rate of 78 per cent. Mayurbhanj district, with a fair Naxalite presence, is one of the designated 150 backward districts. This was an ideal “lab” to see EG in action, for it was a district where it is really needed and, at the same time, it is the sort of place where we would have a high degree of scepticism about governance capacity.A key lesson I learnt here was the importance of involving the local community. Here is an example of what it can achieve. In October 2004, a road was built in village Bahanada in block Betnati. This was a concrete road of about 80 metres running through the ‘main street’ of the village. Dinabandhu and Savitri Behra live in a house on the street. They are well off by the standards of Mayurbhanj, and do not have a BPL card. Dinabandhu and Savitri did not work on the concrete road constructed outside their house under the SGRY.However, Dinabandhu Behra was an active participant in the road construction. He stood vigil to see that the right mix of sand and cement was going into the road construction. What was Dinabandhu Behra’s incentive to watch over the road construction? He was a beneficiary of the public goods being created under the programme.Every year in the monsoons, their house fills up with water. The road being built under the EG programme, with deep drains on both sides, was going to save his house from the rainwater, and the dampness that stays inside for the rest of the year. Dinabandhu stood beside the road with a sense of ownership and said that he and the others who lived on both sides of the road had made sure that the strict specifications to be followed for village concrete roads had been met.The assistant engineer in the block headquarters in Betnati admitted that several phone calls had been made to the block office during the construction of the road.Arun Dey, the local MLA, was very critical of employment generation schemes for the high level of corruption that plagues these schemes. But he also pointed out that “the construction of concrete roads has reduced corruption”. As he put it: “Corruption was rampant in the construction of earth roads. Strict specifications have to be met. Also, involvement of panchayati raj institutions is a good idea.”The success of these plans, especially the quality of the work done, depends on the awareness and vigilance of villagers. They were aware of their rights, they were aware of the specifications that the construction needed to meet, and they held the district administration accountable for the work being done.Law and order is the most important public good of all. The villagers felt safe in complaining when they suspected corruption. And it was all made possible by the telecom revolution that has taken phones to remote corners of the country.The most important lesson to learn from this experience is that in one of the most remote and backward parts of the country, there can be a successful implementation of a public works programme. If the village community in Bahanada could contain corruption in an employment generation scheme, villagers in other parts of the country are better equipped to do so. There is hope.
