Can NREGA's success be replicated in urban areas as well to create robust infrastructure

2nd February is an important date on our calendar as this is when a decade back we launched the Mahatma Gandhi National Rural Employment Guarantee Act programme, popularly called NREGA. It has been one of the most successful ventures of the government in lowering the level of poverty in the country. While it has been, like most government programmes mired in controversy, there is no gain saying the fact that it has made a difference on balance.



Launched on this date in 2006, NREGA assures every rural household 100 days of employment a year at a basic minimum wage within 5 kms of residence for unskilled jobs in the area of deforestation, soil fertility, drought prevention etc. The activities covered are hence useful for the betterment of agriculture and hence in a way can be treated as an input where rural folk work on land to improve the quality of their own resource - a case of the poor helping the poor.

It was meant to help farmers seek jobs and hence an income between two seasons which would keep them out from slipping into poverty. Hence it was not meant for the destitute as such, which is what is also revealed in the data on this programme. The scheme was conceived as being wage intensive so that most of the money went as labour income and less on administration and material.

The programme has some impressive outcomes. First, cumulatively over ten years the government has put in Rs 3.1 lakh crore which averages around Rs 30,000 crore a year. The coverage in 2015-16 is 660 districts covering 2.57 lakh gram panchayats which is the nodal agency for carrying out this scheme. In 2014-15 for instance, as many as 127 million households benefited through participation.

However only around 2.5 million households took the full benefit of working for 100 days and the average number of days worked was between 39 and 42. The ratio of wages to other expenses for this programme was 70:30 as against the norm of 60:40 with this ratio improving under the new government as administrative expenses have been lowered by passing the money to the panchayats. Finally the wage rate has increased from Rs 60 a day to Rs 152 in 2015-16, which is roughly well indexed with the inflation faced by the rural workers.

There have been complaints about the outreach in terms of households not being provided access or not getting the full quota of days of work. Further, leakages from the system have also been reported even though the amount is disbursed through post offices and bank accounts.

This however is a problem with all government schemes and the present mode of dealing directly with the panchayats can cut down on these leaks. Also the UID use should further control the flow of funds. But this limitation, though serious should not be overemphasized as one can rarely come across any such decentralized programme which works absolutely well.

One can say that if 75% of the funds are used appropriately then the programme is fairly successfull. The biggest benefit from this scheme has been that the spending power has increased all over the income streams. The NREGA wage has become the base rate that has to be paid by all employers and hence the income levels across has gone up. This has a flip side of increasing cost of labour in farming as well as construction where such unskilled labour is used in large numbers.

But as the wage increase has been indexed with CPI inflation such an increase cannot be dismissed considering that in the organized sector incomes have been increasing at a higher rate due to a combination of wage negotiation in factories, Pay Commission in government and more than proportionate pay checks in the corporate world which is topped with stock options.

Hence a sum of Rs 35,000 crore involving a wage component of Rs 25,000 crore is not much as it has been capped at this range. As the income earned by these workers was largely used for buying consumer goods, there was a boom in this segment as the party lasted till FY12 or so before high food inflation eroded such spending power which had its repercussions on the industrial growth rate. This was so as the beneficiaries were not the destitute but farmers who were ordinarily self-contained but out of work between harvests who used this extra income to purchase goods.

This is one reason as to why the argument that NREGA was responsible for high food inflation does not hold. Also the wage component of Rs 25,000 crore can be juxtaposed with total value added in the farm sector which is approximately Rs 24 lakh crore which translates into around Rs 32 lakh crore of output. With a share of less than 1% in farm output it is unlikely to have distorted the NREGA programme, and has to be taken to a higher level now.

From unskilled work on farm, it can be used to create permanent infrastructure, and this is where the ministry of urban development, rural development and finance ministry should work together to harmonize these outlays across departments so that the labour which is deployed not only continues to get employment but also create valuable goods. Construction of roads or even affordable housing could be extensions that can deliver superior solutions.

NREGA is evidently an excellent scheme which needs to be replicated in other areas too like urban locations where labour can be used for creating infrastructure and rewarded with a fair wage. Adverse selection and leakages are challenges and will continue to be so given our psyche to cheat. Using alternative systems like Aadhaar will definitely make it more robust and that is the message from this success story.

In short the message is - Do not abandon or lower allocations but streamline the funds in a better way with less intervention from intermediaries so that leakages are reduced. More importantly this can be replicated in other areas too to cover also the urban folk with contributions coming from the centre, state and municipal levels. This can be a win- win situation for all.

The writer is a chief economist at CARE Ratings, and his views are personal.

Updated Date: Feb 02, 2016 16:22 PM

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