Why the govt could look at MNREGA in the time of distress

Argentina’s unemployment climbed to 18%, further jumping to 39% in 1996-97 which was said to be the poorest decile.

To curb the turmoil, the Argentinian government introduced a reformed wage for work programme with the assistance from World Bank (Trabajar II) which provided temporary work for those who sought it, at relatively low wages ­­— set at average earnings, the poorest being 10%. Evaluations ex-post suggest that the government was, on an average, able to successfully provide employment and increase incomes by 22-25 per cent for all participants, with the poorest benefitting the most. However, when the economy recovered, many people found permanent jobs and returned to their preferred workspace.

Since 1997, there have been many instances when countries such as Argentina, Mexico and Brazil, celebrating more for their cash transfer programmes, have frequently used workfare programmes in times of economic downturn. It is not unusual for governments to turn to workfare programmes to cushion the impact of macroeconomic and climatic shocks that tend to affect the poor disproportionately and in large numbers. Workfare programmes provide a safety net that enables those who are vulnerable to tide over serious losses in income, that can have longer-term consequences to their well-being and human capital.

The experience of these countries is a timely reminder for India — not that one was needed — of the potential of workfare programmes to aid in economic recovery. Despite the optimistic statements from some in the industry and government that the tough times won’t last, there is a broad consensus that the bad times are not going away any time soon.

Among the many suggestions that have been made recently to boost the economy is that the government must focus on rural revival. This prescription is deeply appropriate, even if by no means sufficient as a stand-alone intervention.

By many accounts, after a robust increase in rural wages since 2009, it has plateaued somewhat in the past five years. Construction work that drove the non-farm sector is yet to recover from its implosion after demonetisation. Farm work for the landless and small and marginal farmers has been hard to come by, given the stress the agriculture sector has faced. A key priority is to ensure that any policy increases the purchasing power of rural households, including farmers, in ways that impact as many as possible. The MGNREGA fills the bill.

Here is a programme already in place, running, even if not quite a well-oiled machine, touted by the World Bank in 2014 as a “stellar” example of a rural development programme. The programme’s scale is large, as anything implemented in India tends to be. Since its inception in 2006, it has generated over 28 billion person-days, US$ 78 billion at $2.8/person-day.

Despite accolades from the international community, at home, the MGNREGA is a much-maligned program. Since its rollout, many economists and commentators have rarely missed an opportunity to criticise the programme, and with obvious relish. Yet the evidence tells a different story.

While outlays are significant, the total expenditure on the programme is modest, at about 0.4% of the GDP. In 2018-19, the MGNREGA generated an average of 50.85 days of employment per worker, at ₹179.12 per day. At no time in its short history has it accounted for significantly more than 3% of the labour market, far from the Wall Street Journal’s claim that the programme was “wrecking the national labour market”.

Also read: Nobel laureates and their experimental economics

While the debates on the MGNREGA are more nuanced than presented here, a dispassionate assessment of the MGNREGA suggests that as a social protection, it has been effective in generating work, propping up wages and filling an important need for rural adults during the lean season and in times of shocks.

Estimates from several studies suggest that consequent to the programmes, rural wages increased by around 1-9 per cent across demographic groups and regions, with benefits occurring mostly for the poorest and disadvantaged communities, and in the slack season when agricultural work is unavailable.

The highest impacts were seen where the scheme was implemented well. Arguments that the MGNREGA is tantamount to digging holes too have not been borne out by evidence; much of the available evidence suggests that many of the MGNREGA works have been useful and indeed even supportive of agriculture.

The strongest argument against the MGNREGA is often made in the name of the farmer — that it has squeezed the profits of farmers, whose livelihoods are already precarious. The MGNREGA has crowded out labour supply to farms, implying that the MGNREGA did tighten the labour markets. There is some truth in this.

Some researchers found that while on an average there were significant income gains, the top quintile in rural areas likely lost on account of the programme; there has been a displacement of labour supply to agriculture, encouraging mechanisation in response.  However, it is not often acknowledged that many small and marginal farmers are themselves beneficiaries of the MGNREGA.

The 2012-13 survey of the Situation Assessment Survey of Agricultural Households noted that 44% had job cards, and 7% of farmers worked on MGNREGA as the primary activity in the lean season agricultural households. A survey we conducted in Maharashtra of households that benefitted and worked on the MGNREGA showed that 96% of those who benefitted from works on private land identified themselves as farmers.

In neighbouring Madhya Pradesh, in a study of young farmers, most of them turned to the MGNREGA when they did not have water for a second crop. In recent years, however, the MGNREGA works were hardly available. It is no surprise that farmers who collectively marched to Delhi as part of the historic Kisan Mukti March last November had the MGNREGA feature prominently on their list of demands, not as a problem but as a solution. They demanded that the government effect an “increase the number of guaranteed employment days under MGNREGS to 200 days per family, ensure wage payment at par with legal minimum wages for unskilled farm labour and extend this scheme to urban areas”.

If the MGNREGA is demand-driven and self-selecting and in place anyway, what else does the government need to do? In recent times, several implementation issues have surfaced that require urgent attention.

The forced and unplanned transition to Aadhaar-based payments has unleashed chaos in the system. A recent Indian School of Business study in Jharkhand, for example, suggested that in 39% of the Aadhaar-linked transactions, transferring wages to workers under the MGNREGA ended up in the bank accounts of others.

Workers are typically left to their own devices to track and retrieve the money. There is evidence that delayed wage payments and uncertainty discourage workers from seeking work under the MGNREGA which erodes the ability of the programme to serve as a credible safety net. Even when the workers receive wages, MGNREGA wages remain pitifully low, set even below the legal minimum wage, a point repeatedly made by several activists and researchers.

To be clear, the MGNREGA cannot substitute deeper and systemic efforts to generate jobs, nor can it address structural weaknesses in the economy. At the same time, the government’s reluctance to view the MGNREGA as an opportunity and explicitly include it in a broad-based strategy to tackle the current economic crises is puzzling, especially in the face of broad-based evidence of its effectiveness.

The need of the hour is for the government to place MGNREGA at the heart of its strategy to tackle this economic emergency. What would this entail? The government needs to allocate funds to the programme consistently, prioritise and streamline wage payments and demonstrate a willingness to move away from the current preoccupation with Aadhaar–based payments — the latter to ensure that workers do in fact get their wages. When these are ensured the MGNREGA can bring people to work and augment their incomes that in turn would likely enable more spending in rural areas.

The Economic Survey of 2019 suggested that the MGNREGA offers an early warning signal to detect rural distress. It is time the government started treating it as an instrument to alleviate the consequences of rural distress.

(Sudha Narayanan is Associate Professor, Indira Gandhi Institute of Development Research and a Ph.D. in Agricultural Economics, Cornell University.)

(The Federal seeks to present views and opinions from all sides of the spectrum. The information, ideas or opinions in the articles are of the author and do not necessarily reflect the views of The Federal.)