The war on India’s rural employment guarantee scheme is actually a war on the claims of the poor on the nation’s prosperity

nregsBy Amitava Gupta*

Concerned about the approach of the central government toward the Mahatma Gandhi National Rural Employment Guarantee Act (MNREGA), 28  development economists wrote a letter to the PM, urging him to stop tampering with the scheme. The letter, as one might have suspected, did not go down well with Jagdish Bhagwati. He, along with his Man Friday Arvind Panagariya, was quick to put forward a rebuttal. Though Bhagwati’s credentials as a trade theorist cannot but be acknowledged even by his bitterest critics, he is hitherto not known for his contribution toward development economics. Panagariya would merit even lesser mention. But, that should not ideally deny their argument a fair scrutiny.

The central government announced a set of measures over the last couple of months or so. Those include restricting the scheme to the poorest 200 districts; reducing the labour to material ratio from 60:40 to 51:49; freezing the real wage rate; imposing cap to state expenditure on the scheme.  Put together, those measures deliver a lethal blow to MNREGA. Bhagwati and Panagariya extend unconditional support to this rather brutal amputation. What they essentially do is to summarize the standard arguments against the scheme. The arguments can be clubbed under two heads— i) the scheme is marred in corruption; ii) it does not generate revenue to justify the spending from the exchequer and hence, it should be done away with. It is worthwhile to check whether any of these arguments has some merit or these are just political salvos packaged as economic wisdom.

No one in his right mind would deny that MNREGA carries the burden of corruption. However, an intriguing question will be, is there any scheme whatsoever in India not plagued by the menace of corruption? If MNREGA is to be singled out for prevalence of corruption, one needs to show that this scheme has level of corruption significantly higher than the general level. Unfortunately, none of the so called pro-market economic gurus, including Bhagwati, took the pain to do this statistical analysis to substantiate their claim. Or, may one suspect that they actually did and found their hypothesis does not hold true?

There is no good reason to assume that MNREGA would have a statistically significant higher prevalence of corruption than any other welfare scheme, or any other scheme in general. Rather, one might logically conclude that if one scheme has the potential to do away with rampant corruption, it is MNREGA. It is structurally more transparent as bulk of the expenditure in this scheme goes toward wage payment. So, it is comparatively easier to track the money trail, so to speak. In the age of information technology, Aadhar card and direct cash transfer can eliminate leakage in MNREGA to a large extent. In fact, some of the states, among those some are run by BJP-led governments, have actually achieved significant success in reducing corruption in the scheme. It is predominantly a design issue. Abandoning the scheme or mutilating it is not the solution.

In fact, prevalence of corruption can never be the clinching argument for the anti-MNREGA lobby. If the government needs a substantive reason to abandon MNREGA (it appears though that they can jolly well do without any reason whatsoever to do away with the scheme), it has to question the rationale behind it. That’s exactly what the second set of arguments does. Bhagwati did not mince his words when he declared the scheme economically unviable as it does not generate enough revenue to justify the cost incurred by the government. In the world of Bhagwati, no economic activity of this order is worth the slightest mercy. His verdict is unambiguous— scrap the crap!

Economists like Bhagwati, and their patrons like Narendra Modi are almost designed to miss certain changes in India that international bodies like International Food Policy Research Institute pointed out. In the latest Global Hunger Index, the institute noted that India has made a significant improvement in number of under-weight children under five and the prevalence of underweight in children fell by almost 13 percentage points between 2005-06 and 2013-14. It also noted that the sharp drop by India in the GHI score outpaces the drop seen in other South Asian countries. As if to prevent economists, sharing Bhagwati’s misgivings toward the huge benefits of large social sector spending under the UPA, from attributing the result to sheer coincidence with the roll-out of NREGA, the institute mentioned that the score has improved due to the governments roll-out and expansions of several programmes that target under-nutrition. Such schemes include ICDS and NRHM as well as MNREGA.

Bhagwati would remain unimpressed by this. Even the fact that mere 0.3% of India’s GDP goes toward MNREGA and that in turn benefits 50 million households (roughly 125 million people, poorest of the poor) would not cut the ice. The idea that the government does not spend to earn profit but to achieve some socially desirable goals may be obnoxious to the ideological compatriots of Bhagwati, but that is precisely the case. The cost-benefit analysis is something that the corporates swear by, but it is not and can never be the guiding principle behind government spending. Developing capability among the most downtrodden of the citizens is one of the basic duties of any government. To help theme generate a little more income than the market would ever allow is the state’s responsibility. If someone needs to measure the success or the lack of it of MNREGA, checking whether it helped the poor get a better deal in terms of their wages is the way to go.

Jean Dreze and Amartya Sen, in their latest book India: An Uncertain Glory (2013), showed that the scheme actually delivered. In the first five years of the twenty first century, when the BJP-led NDA government was crying their voice hoarse in praise of the shining India, the real wage rate of rural male agricultural labourers crept up at a pace of 0.1% per annum. However, that was the highest income growth rate any rural worker could achieve as everyone else’s real income had shrunk over that period. It never shone for them. From 2005-06 to 2010-11, things took a distinct turn toward a somewhat better prospect. All rural workers, whether working as non-agriculture unskilled labourers (the category MNREGA applies to) or not, saw their real wage increasing at last. Women benefited more than men. Their wage growth rate never caught up with the spectacular GDP growth India put up but the difference ceased to be obscene. What the cheerleaders of Narendra Modi might have intentionally overlooked is the fact that not an insignificant volume of asset was created too through this scheme. It’s true that the assets created would not pass the litmus test of cost-benefit analysis that the corporates would insist on, but the scheme was never designed as one to create rural assets. Generating employment and increasing rural income were the targets and if anything, MNREGA did not fail to deliver.

A more recent, and by far more civil piece, refuting the case for MNREGA, by Abheek Barua grudgingly acknowledges MNREGA’s impact on rural wage. He, like Bhagwati, argues that MNREGA has distorted the rural wage rate and that in turn created a supply shock to agriculture as well as industry. Until very recently, all the scheme offered as daily wage was the princely sum of Rs 130. If that, as an outside option, distorted the prevalent wage structure, what was the wage rate that the labourers were forced to work at? A comparison with China is in order. Wage rate in the manufacturing industry in China grew at around 12% per annum over the first decade of this century. India lagged far behind with an annual growth rate of merely 2.5%. If an economist of some repute uses his well earned skills to make a case for forcing the labourers to revert back to that apology of a wage rate, he is indeed behaving like a ‘heartless right wing monster’, as Barua sarcastically put it.

It is more than clear that the bounty the entrepreneurs enjoyed came at the cost of the welfare of the downtrodden. MNREGA was instrumental in undoing some of the injustices. Narendra Modi will probably revert it and duly compensate the capitalists for the inconvenience they had to put up with. Where would the money, which would otherwise have gone to 50 million families, go? A fair guess would be that it will be spent on dedicated freight corridors, smart cities, flyovers and likes. Though that would be of immense benefit to the entrepreneurs, will it anyway be of some use to the proverbial aam aadmi (I realise, to my surprise, that this word is almost out of circulation now)? Economists of the Bhagwati-Panagariya variety would bring in the trickledown theory that essentially says that the rich cannot mop up all the benefits; at least some leftovers will eventually reach the poor. If that was to be the case, then why the shining India failed its poor is one question that they would not like to answer.

The war on MNREGA is actually a war on the claims of the poor on the nation’s prosperity. I elsewhere argued that the UPA revolutionized the concept of welfare in India by transforming it from being dependant on the rulers’ mercy to a constitutional right through schemes like MNREGA and Right to Food. The Modi regime seems determined to turn it on its head. UPA gave the aam aadmi their right to claim a fair share of the country’s economic growth. It bound the government to deliver to the irrespective of the ruler’s sweet will. Weakening schemes like MNREGA and ushering in the failed theory of trickle down to become the guiding philosophy of governance, NDA is shoving the worst betrayal down the throats of the poor.

When people believed in achche din, they certainly did not have this in mind.

*Amitava Gupta is an assistant editor, working for the edit page at Ananda Bazar Patrika, Kolkata. This article first appeared in kafila.org

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