The MGNREGA program

The National Rural Employment Guarantee Act (NREGA) is one of the largest programs of its kind in the world. It is a flagship program of the Indian government, and a major talking point for the UPA (center-left) political parties. It makes frequent appearances on rallying cries during political campaigns, and is a significant portion of the Indian annual budget. NREGA’s annual spend is about INR48,000 crore (~$9 Billion US dollars) — amounting to more than 11% of the 2011 Union budget expenditure.

Annual spend on NREGA in US Dollars.

So what is it?

The Official MGNREGA logo

The National Rural Employment Guarantee Act (NREGA) is a long acronym, but descriptive: it is a large-scale program by the government of India to provide a guaranteed paid labor to households in rural parts of India. 17 million and more families have been provided employment due to this program.

The program, enacted in 2005, offers guaranteed labor for 100 days in a year, and if suitable work cannot be found for registered workers then an unemployment allowance is paid instead.

Everyone seemed to have an opinion about NREGA. Some admire an ambitious plan to make changes, others disagree with the principle of guaranteed labor. But everyone I spoke to agreed that in execution, the plan has countless problems.

There are some pretty intriguing arguments in favor of this program, which, from what I can tell, was the brain-child of economists including one Jean Drèze.

The most obvious argument, and a natural motivator to put something like this together, is that there’s plenty of work to be done in India, and plenty of people that need work.

The Federal government pays the wages and much of the other costs (materials, administration) of the putting people to work. The State and local governments are responsible for finding the projects and managing the employment. I thought this was pretty clever: although wages comes from the Federal budget, the allowance, if necessary, must come out of the State’s budget.  Therefore the state has a strong incentive to find suitable work for all registrants.

These and other checks-and-balances are meant to make sure that NREGA functions as intended. Which is important in a piece of legislature of this size and scope.

Corruption and unintended consequences

While traveling in India, I got into several discussions on this topic. Everyone seemed to have an opinion about NREGA. Some admire an ambitious plan to make changes, others disagree with the principle of guaranteed labor. But everyone I spoke to agreed that in execution, the plan has countless problems.

A big feature of these problems, of course, is corruption. Corruption in India is a scourge that takes countless smart ideas and good intentions, and renders them useless. It holds back progress in the country in order to provide immediate perquisites to people who are sometimes rotten souls, but often just ordinary people who eventually succumbed to a seemingly inescapable system.

In any multi-layered, hierarchical program in India, money leaks out at each administrative step. NREGA is riddled with these types of problems. People need to pay bribes to register for programs, bureaucrats make fake registrations and pocket the funds, the selection of projects is subject to the whims of corrupt officials, and so on.

Okay, yes, corruption ruins everything, and everybody I spoke to about NREGA rightfully mentioned corruption. But I find it perhaps more interesting to look at the unintended consequences of the program, failure points at a more fundamental level. I mean, guaranteed labor? Doesn’t that just scream unintended consequences to you?

For example, the productivity of workers that are provided guaranteed labor is very low — no surprise there. And the desirability of a government-paid and low-stress employment trumps that of any competing options, and so laborers previously employed at other projects (like private construction and agricultural labor) have an incentive to quit their jobs in favor of this more attractive option. Consequently, the government has to actually suspend the program during peak farming periods to counteract resulting labor shortages.

I heard one person argue that, as little as it sounds (INR120 or about $2 a day), getting paid at about minimum wage for 100 days each year is pretty decent for many households. So decent, in fact, that some may decide that they don’t need to work (or work very hard) for the remaining 265 days. That’s one reason, she said, that finding people for household work is getting pretty difficult.

Any program as large as this will have unintended consequences like these. How significant are they, relative to the benefits of the project?  To what extent should they be treated like casualties of war, to be minimized, but largely unavoidable, and to what extent do they make a convincing argument against the program as a whole? 

Changing the name, by the way, to the Mahatma Gandhi National Rural Employment Guarantee Act, doesn’t seem to have helped alleviate any of these issues, but it is fantastic political rhetoric.

The MGNREGA program stipulates that a third of the workforce must be women. In 2011, about half of the 45 million people employed by the program were women. This was a whole other topic of conversation, which I’ll post about later.



One comment

  1. Pingback: Mahatma Gandhi National Rural Employment Guarantee Act « cseindiaportal

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