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No 100 per cent guarantee

The National Rural Employment Guarantee Bill to be tabled in Parliament has sparked a debate on the desirability and feasibility of extendin...

Written by Raghav Gaiha |
December 20, 2004

The National Rural Employment Guarantee Bill to be tabled in Parliament has sparked a debate on the desirability and feasibility of extending the innovative Employment Guarantee Scheme (EGS) in Maharashtra to the poorest 150 districts in India. Some of the provisions of this Bill reflect lessons learnt from distortions that have crept into the scheme (manipulation of muster rolls, delays in offer of work and payment of wages, unsatisfactory design and implementation of projects, lack of transparency in disbursal of funds). Those relating to offer of work within 15 days of demanding it and not exceeding a distance of 5 km, a minimum of 100 days of work to an adult in a household, medical entitlements, and a key role for village panchayat and gram sabha in its design, implementation and monitoring are indeed laudable. Questions, however, have been raised about the fiscal burden this scheme will impose on central and state governments, and about its poverty alleviating potential. I shall deal largely with the latter.

While the minimum wage provision has been deleted from the draft Bill, the implications for the poor need to be better understood as there is already a strong opposition to it. The case for statutory minimum wages is not persuasive. On the other hand, the case for restricting the guarantee to the poorest 150 districts — another amendment — needs to be reinforced.

My analysis points to a sharp decline in EGS participation in 1989, following the wage hike in 1988. Given the budget constraint, a substantially higher wage conforming to statutory minimum wages led to large scale rationing. Estimates vary, but well over half of the reduction in EGS attendance in 1988-89 relative to the previous year was due to rationing. The poor bore the brunt of it. As even the relatively affluent found it attractive to participate in the EGS at higher wages, there was a weakening of the self-selection mechanism. Many of the poor were ‘‘crowded out’’.

The rationing mechanisms further disadvantaged the poor. These involved longer delays in responding to the demand for work, and restrictions on opening of new work-sites. The targeting accuracy fell sharply in the International Crops Research Institute for the Semi-Arid Tropics (ICRISAT) sample, from about 48 per cent of the participants being poor in 1979 to barely 27 per cent in 1989. The case, thus, for offering 100 days of employment at statutory minimum wages, as originally proposed, is contentious. What it also overlooks is that, even among the poor, the disincentives of workfare — neglect of job-search and income enhancing skills — may be stronger. While available evidence does not confirm these effects — a large subset of poor EGS participants withdrew from it when better employment opportunities appeared in the ICRISAT sample villages — at higher statutory minimum wages the dependence on the EGS may increase. This highlights the need to restrict the scheme to seasonal slacks.

In principle, a rural public works scheme confers transfer and stabilisation benefits. Transfer benefits could be direct (income gain net of opportunity cost of time) or indirect (output gains from assets created, and higher agricultural wages through a stronger fall back option of agricultural labourers). Stabilisation benefits focus on welfare gains through income/consumption smoothing during slack periods.

Unlike the EGS in Maharashtra, the draft Bill does not restrict the scheme to slack periods. This has the merit that labour supply withdrawals during peak periods would result in higher agricultural wages. But there is a risk that neglect of job-search may become more pervasive. In any case, restricting the participation to slack periods would have a stronger income/consumption smoothing effect. The risk of income shortfalls in backward regions is very high indeed, and liquidation of assets (e.g. cattle) is often the only survival option. But this may impair future income prospects in the absence of easy access to credit.

A third related point has to do with the protective and promotional roles of the EGS. The first focuses on whether the vulnerable are protected from slipping into poverty, and the second on whether the poor are enabled to move out of poverty. Simulations carried out with the ICRISAT panel data corroborate that substantially larger EGS outlays combined with maximum participation of the poorest yield much stronger protective and promotional effects. There are three implications: the proposed scheme must be confined to the most backward regions; a (relatively) low wage must be maintained to attract only the poorest; and the scheme should operate only during seasonal slacks.

Finally, a much debated issue is whether this scheme is a relief measure or an intervention with a longer-term developmental role. The draft Bill glosses over this. If account is taken of simulation results of rural public works, premised on efficient design and accurate targeting, not only do the poor improve their welfare substantially but the economy also grows faster. The available evidence on the quality of assets created and their maintenance is, however, far from reassuring. Not only are their benefits skewed in favour of the more affluent, but there is hardly any provision for their maintenance. Although assigning a role to village panchayats may make a difference, concerns remain. It is not obvious, for example, how conflicts between panchayats and bureaucracy would be resolved; whether a gram sabha can perform an objective social audit in an unequal milieu; and whether substitution of private assets (wells for individual farmers) for public assets (roads linking remote villages to markets, percolation tanks) would be avoided.

The proposed scheme is unlikely to meet expectations. Its design is driven more by political compulsions than by concern for poverty eradication.

The writer is professor of public policy, Delhi University. He has studied the EGS in Maharashtra

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