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Does NREGA really work?

By

Surjit S Bhalla

(Business Standard, Mar. 27, 2010)

Blurb: Despite tall claims, the NREGA program is just a dud as most other “in the name of the poor” expenditures – and as much of a dud as predicted by Rajiv Gandhi.

A decade or so ago, Booker prize winner Ms. Arundhati Roy claimed that the building of dams in India had displaced more than 50 million people. This implied that one out of every three rural Indians had had to move because of the construction of dams (remember the population was a lot lower when most of the dams were built in the 1950s, 1960s and 1970s). Upon closer examination, it turned out that the number of people displaced was more than a tenth lower, with the likely estimate around 3 million.

It is poetic and novelist license to indulge in hyperbole; it is quite another matter when official agencies of the government do the same. And especially in the good governance era of 2010 and beyond. The latest report of the Ministry of Rural Development, (the one in charge of implementing the National Rural Employment Guarantee Act , NREGA) makes an Arundhati Roy like claim: that as of Dec. 2009, 43 million households had been provided with NREGA employment in 2009/10. The last quarter of the fiscal year is the largest for such employment : around a third of total NREGA jobs. The projected employment for 2009/10 is likely to be close to 50 million households. There are about 150 million rural households; this Congress claim is the same as Ms. Roy: one out of every 3 households in rural areas will have worked on NREGA! Even more remarkable – the jobs are meant to be hard work, menial, at minimum wages and for the poor. In 2004/5, official estimates place  rural poverty in India between 20 to 25 percent. Assuming no improvement in poverty at all – an extraordinary accomplishment for a government that prides itself on inclusive growth – 22.5 percent poor households mean 34 million. So the government is claiming that every poor household is covered, and for good measure, 50 percent more are provided employment.

This superlative achievement is credited by many – both within the Congress and the Opposition – for Congress’s surprise win in the 2009 elections. Some of us had predicted such a win, but without recourse to this super weapon of opposition destruction. It was because we had not looked at the government data. In 2006/7, the first full year of implementation, the government claimed to have provided employment to 21 million households. In the space of just three years, the government is claiming to have increased jobs for the poor to 50 million. No wonder the Congress won, and won so emphatically. The poor just love the Congress, because it has stood tall for them.

But has it? It was not so long ago that Rajiv Gandhi had stated that he had found well meaning programs meant for the poor but not reaching the poor. Without much scientific basis, he came out with the assertion that only 15 percent of the expenditures meant for the poor actually reached the poor. Experts who have tried to test this assertion have found more truth in that statement than almost any other forecast of an economist, defunct or otherwise.

There is a way to test the veracity of Rajiv Gandhi’s prediction, and the Congress governments’ claim on reaching the poor. In 2006/7, in the 63^rd round of the all India NSS survey, a special question was asked of those above the age of 15: did you work in a public works program during the last 365 days, what wage did you get and how many days did you work. These answers are reported in the Table along with the statistics from the Ministry of Rural Development. The latter are for the period April 2006 to March 2007; the NSS figures are for the period July 2006 to June 2007. To the extent the rapid expansion of NREGA is true, the NSS figures are an over-estimate of the “true” financial year figures.

The first figure of note is the fact that NREGA was not able to spend all the money allocated for it; indeed, it spent less than three-fourths of what was allocated. Of course, those were early days of the program, but even in 2008/9, when allocations reached Rs. 30,000 crores, the NREGA authorities were able to spend only 73 percent. The Ministry claims only Rs. 8823 crores were spent in 2006/7, and two-thirds of this amount (Rs. 5842 crores) was spent on wages. The rest are administrative costs, capital equipment, etc. i.e. Rs. 3250 crores were spent to facilitate expenditures. But was this money ostensibly spent as wages – Rs. 5842 crores –received as wages by NREGA workers? According to the NSS, only half of the expenditures allocated as wages was received as wages – Rs. 3000 cores received vs. Rs. 5842 crores meant to have been received. Even less went to the target poor worker. The NSS reports that NREGA wages received by the poor were only Rs. 1270 crores.

Let us ponder on this figure for a little while. The government announces with much fanfare that it is spending a lot to fight hunger, poverty, injustice and inequality. Despite repeated evidence for the last twenty years that “in the name of the poor programs”, and especially in the name of the poor programs, reach everybody but the poor, the well-meaning socialist but not so realist Congress renamed and expanded existing food for work programs under its own Congress brand as NREGA, and now MREGA. (Ironically, but poetic justice style, the latter acronym also means “to die”!). It spends Rs. 8823 crores on the program in 2006/7 (and Rs. 39000 crores in 2009/10) and is able to actually deliver only 14.7 percent (Rs. 1270 crores) to the targeted audience?! The figures suggest that Rajiv Gandhi, the enlightened pragmatic realist, was extraordinarily right.  

The author is Chairman of Oxus Investments, an emerging market advisory and fund management firm. Please  visit www.oxusinvestments.com  for an archive of articles et; comments welcome at surjit.bhalla@oxusinvestments.com

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