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The essence of rural job scheme

By Business Standard
September 10, 2009 11:39 IST
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The National Rural Employment Guarantee Scheme (NREGS) was launched by the previous United Progressive Alliance (UPA) government in the first flush of its commitment to the 'Aam Aadmi' agenda.

Criticised by many for a variety of reasons, from fiscal burden to the prospect of leakages, it nevertheless became the UPA's defining and differentiating programme. Many people, inside and outside the alliance, gave it significant credit for playing a part in the UPA's re-election and, since it was closely associated with Sonia Gandhi, for strengthening the Congress's position.

The Union Budget for 2009-10 provided a significant increment of Rs 39,000 crore (Rs 390 billion) based on the government's intent to expand the scale and coverage of the scheme. But, parallel to these good intentions, the political saleability of the programme seems to be tempting people to milk it for all that it is worth.

Unchecked, this may end up destroying the fundamental merits of the scheme, with some unfortunate consequences for labour markets throughout the country.

The temptation is manifest in efforts to expand eligibility from one adult per household to an unlimited number as well as to set the daily wage to a uniform Rs 100 per day. It is well-known that rural wages differ enormously across the country and the first version of the NREGS took this into account by setting state-specific daily rates.

In many states, Rs 100 per day, particularly if more than one member of each household can get it, will prove to be significantly higher than the market wage, which means that many people will withdraw from the labour market to claim the scheme's benefits.

This argument does not ratify the objection that many farm and industry lobbies have raised to the scheme: that it raises their wage costs unbearably. All of them ought to be paying at least the minimum wage to all their workers, which the earlier version of the NREGS would have ensured.

However, if the scheme itself causes a significant distortion in the market, then the withdrawal of labour from the market could pose a threat to commercial viability of both agriculture and industry. Further, with bloated enrolment, costs and consequently, the fiscal burden will dramatically increase.

In its essence, the NREGS is a pragmatic and entirely justifiable safety net that guarantees subsistence without distorting labour markets by respecting regional differences in the minimum wage.

Its effectiveness lies in the self-selecting nature of its beneficiaries; only those who are on the verge of destitution would have an incentive to enrol. It should not be converted into a general feeding trough, attractive enough for even relatively better-off families to take advantage of, which will both distort its targeting of the truly deserving and raise costs.

The UPA may claim the political dividend for having launched the scheme, but in the interests of sustainability, it is perhaps time to think of a multi-stakeholder governance framework to manage it. The scheme simply cannot be compromised by political calculations.
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