MGNREGA is unwell

But tinkering with labour materials ratio or its coverage is not the right medicine

Written by Martin Ravallion | Updated: October 24, 2014 8:39:33 am
 These changes will not solve the main problems with the scheme, which relate to effective implementation on the ground, most importantly in India’s poorest areas. These changes will not solve the main problems with the scheme, which relate to effective implementation on the ground, most importantly in India’s poorest areas.

India’s 2005 Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) creates a justiciable “right to work” by promising up to 100 days of wage employment per year to all rural households whose adult members volunteer to do unskilled manual work. Employment is provided in public works projects at a stipulated wage.

The Central government proposes to allow a greater share of the cost of projects under the scheme to go to skilled labour and materials. The mandatory share for unskilled wages will fall from 60 per cent  to 51 per cent. It is also proposed that the MGNREGA be focused on backward areas only.

These changes will not solve the main problems with the scheme, which relate to effective implementation on the ground, most importantly in India’s poorest areas.

In a book published recently, Right to Work?, my coauthors and I studied how the scheme was working across India, but chose to focus especially on one state, Bihar, which is simultaneously one of the poorest states and has the lowest participation in the scheme. (The book is open access, at: iexp.in/vPx119614.)

Under the idealised conditions that the MGNREGA’s founders had in mind, we find that the scheme would have a large impact on rural poverty in Bihar, bringing the poverty rate in 2010 down by at least 14 percentage points.

However, reality falls far short of this ideal. We estimate that the actual impact on the poverty rate was around 1 percentage point. A specially-designed survey of 3,000 households across all of rural Bihar was used to make this calculation and to understand this disappointing performance. Along with extensive discussions in the field, we learnt a lot about how the scheme might work better.

A fundamental problem is that poor families are not getting the work they want on the scheme, and they are often not getting the full wages due to them. Their participation is far from costless — many have to give up some other income-earning activity when they take up work. But the unmet demand for work is the single most important factor in accounting for the gap between actual performance and the scheme’s potential impact on poverty.

Our study also found very low public awareness about what needs to be done to obtain work. We used a randomised control trial of a specially-designed fictional (and entertaining) movie to show how knowledge of rights and processes can be enhanced. The movie was effective in raising awareness. But it had little discernible effect on actions such as seeking employment when needed. The reason is supply-side constraints on the ground, at the local level.

Those constraints need to be addressed, in addition to raising public awareness. A number of specific supply-side constraints on work-provision can be identified, including poor implementation capacity, weak financial management and defective monitoring and grievance-response systems.

It would help if changes in the scheme’s design allowed extra resources to address these constraints. This would not require a large reduction in the share of spending going to unskilled wages, as proposed. That will reduce the share of spending going to poor people. There may well be compensating benefits in terms of the durability of the assets created, although that is unclear. Such benefits may well come at a cost to the impact on poverty.

Nor is it a good idea to confine the scheme to backward areas. For one thing, capacity and performance are likely to be lower in those areas, though with some exceptions. Also, the attraction of the MGNREGA is that (in principle) poor families who need work can be reached wherever they happen to live. Of course, there will be a higher incidence of poverty in backward areas. But there will be plenty of people who need the scheme but are not living in those areas.

Rather than tinkering with the design in such ways, realising the scheme’s potential requires coordinated action on two fronts. First, administrative capacities for implementation and monitoring should be improved. Second, there needs to be greater public awareness of the rights and rules of the scheme, more active public mobilisation and better mechanisms for following up on problems.

If the potential gains to India’s poor from the MGNREGA are to be realised then policymakers will need to focus on these problems. Given the scheme’s current level of complexity, this will not be possible unless poor areas have greater administrative capacity to implement it. Reforms need to change the entire calculus of costs and benefits facing local leaders and officials. If workers know collectively that they can demand work at the stipulated wage under the law then they will resist any attempt by officials to ration them or take a cut from their wages.

It is important that reform efforts for MGNREGA work on both these aspects — a stronger, more capable, local administration, plus more effective participation by civil society. One without the other will not assure a true rozgar guarantee.

The writer is professor of economics at Georgetown University, Washington DC, and president-elect of the Society for the Study of Economic Inequality
express@expressindia.com

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