Alok Ray

Mixed report card on NREGS

ALOK RAY | Updated on April 18, 2011

Though the scheme provides minimum income security to the poor, it does not contribute to long-term growth or poverty alleviation.

The scheme has reduced rural migration and promoted financial inclusion, but needs to create more durable assets.

The Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) – the only government social welfare scheme named after the other Gandhi, not belonging to Nehru-Gandhi family – has recently completed five years. The performance of the scheme, considered a major pillar of UPA government's strategy of inclusive growth, has been a matter of debate.

The fundamental difference between MGNREGS and similar projects like Food for Work, which it replaced, is that it entitles at least one member of each rural BPL family to a minimum of 100 days of work at the minimum wage. This is meant to provide some minimum assured income support to all rural households, keeping them above the poverty line.

Has the scheme lived up to its promise? Unfortunately, there has been no comprehensive impact assessment or accounts audit undertaken over the last five years. What exists are some official data on amounts spent and person hours worked, which have given rise to a discussion over the achievements of the scheme.


According to the Ministry of Rural Development, the scheme generated employment of 130 crore person days at an average daily wage of Rs. 75 in 2007-08. But economist Surjit Bhalla estimates ( Financial Express, February 17, 2011), on the basis of an NSS survey for 2007-08, that at most only 8.8 crore person days were worked by the ‘poor' (according to the Tendulkar poverty line), suggesting a huge amount of corruption and siphoning of funds. The average annual person day per household under the scheme has never exceeded 54 days even in 2009-10 – a year when the country experienced widespread drought.

Further, media reports indicate that civil society groups were prevented from carrying out a social audit of MGNREGS projects in some states. Eventually, the audit was done by gram sabhas which would amount to a farce as they were interested parties.

The other major criticism is that despite pumping in more than Rs. 1.1 lakh crore into the scheme since its inception in February 2006, it has not created much durable assets (like all-weather roads or fortified irrigation canals). In this connection, the minimum 60 per cent labour cost requirement under MGNREGS is considered a hindrance. For instance, contractors complain that no durable all-weather road can be constructed by using 60 per cent labour.

Further, there is no provision under the scheme for repair and maintenance of existing water conservation or irrigation structures, where more can be achieved with the same amount of expenditure.

In other words, even if MGNREGS provides some minimum income security to the poor, it does not contribute to long-term growth or permanent poverty alleviation.


A problem that has now arisen is that since the funds come from the Centre, many state governments are arbitrarily raising the minimum wages at which MGNREGS labour is paid. Moreover, since the work is supervised mostly by elected local officials, they tend to keep the workload light and overestimate the work done to keep voters in good humour, not to speak of making wage payment to some people who did not work at all.

So, in principle, some labour is likely to be diverted from more productive and strenuous agricultural jobs.

MGNREGS has raised the cost of cultivation in areas which depended on migrant workers during the agricultural season. Consequently, farming has become less profitable in some areas, further contributing to higher agricultural prices and food inflation.

It is also contributing to food inflation by creating rural purchasing power. Of course, one can argue that to the extent the programme is benefiting the poor, the consequent inflation may not be bad.


Some analysts suggest that a part of the money may be better utilised if it is used to finance a specific number of days of training in skills like carpentry, foundry, weaving, sewing, etc, for the unskilled rural poor and make them employable for more productive occupations.

The MGNREGS will become really successful if it eventually eliminates the need for such a programme. Moreover, extension to more areas and people would be increasingly difficult to finance without impinging on core development expenditures. Hence, the critics suggest that the long term benefits would be more if the funds were used to build high quality rural infrastructure like pucca all-weather roads, fortified irrigation canals, electricity, and telecom connectivity, which can not be done under the existing rules of MGNREGS.


Despite allegations of corruption, micro village-level studies by individual researchers bring out some positive impacts of the scheme on top of income generation for the poor.

The major virtue of MGNREGS is its self-targeting nature. Unlike BPL ration cards with which the card holder automatically gets subsidised food articles, an MGNREGS job card confers benefits only after the individual actually works. Therefore, unless a person is really poor without any alternative source of higher income, he will not make use of MGNREGS, even if he has a job card.

For one, the availability of jobs under the scheme, within or near the village, has enabled many poor people — specially women — to work without the need to migrate to distant places. Apart from supplementing family income, this means less disruption to children's education and family life while saving the monetary cost of migration such as travel and maintaining a second establishment.

The payment of MGNREGS wage in many states is mandatorily made into the bank accounts of the workers and not in cash (to reduce the possibility of payment to fictitious persons).

In fact, some poor people who for some reason could not open a savings account in a bank or post office have been denied the benefit of work under the scheme.

At the same time, this requirement has forced many villagers to open savings accounts in banks or post offices for the first time in their lives, helping them to gradually develop the habit of saving a small amount each month in their bank account. Apart from reducing fraudulent payment, it is contributing to the goal of financial inclusion and increasing the savings rate for both the individual and the nation.

According to a recent article in The Economic and Political Weekly, 83 per cent of MGNREGS card holders have opened accounts in banks or post offices by the end of 2009-10.

This number would increase, if some states like Tamil Nadu were to stop continuing with direct cash payment of wages, and instead transfer the payments to bank accounts.

(The author is former Professor Indian Institute of Management, Calcutta.

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Published on April 15, 2011
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