Two cheers for jobs scheme

| Updated on March 09, 2018

It has worked as a rural safety net. But the Centre has other budgetary priorities

A decade after the Mahatma Gandhi National Rural Employment Guarantee Scheme came into force, the NDA government has come around to accepting its usefulness — and that, in a difficult agriculture year. Last February, the Prime Minister disparaged the programme for merely digging pits. But only a few days ago, the finance minister hailed it as cause for national celebration. The truth lies in between: While the role played by the scheme in alleviating rural distress cannot be denied — a field study of the University of Maryland and the NCAER released last August drives the point home — there is a crying need for creating more productive assets. MGNREGS has drawn criticism for sharply raising rural wages and triggering food inflation. Industry’s complaint is that the scheme has ‘distorted’ the labour market. According to the NCAER sample survey of over 26,000 households visited in 2004-05 and again in 2011-12, 14 million people would have slipped into poverty if not for the employment scheme. This suggests that rise in food demand and bottom-of-the-pyramid wages should not be viewed only in a negative light. Even as the MGNREGS-induced shortage of farmhands cannot be wished away, there have been other forces driving up labour demand, such as the construction sector. Inefficiencies in food distribution and indifferent agriculture output too play a role in high food prices. Those who allege leakages are not off the mark, but States with better civil society involvement and panchayati raj bodies, such as Rajasthan and Tamil Nadu, have fared better. Direct bank and post office transfers have curbed wage siphoning, and the JAM (Jan Dhan, Aadhar, Mobile) network can add to the impact.

Implicitly referring to the inflationary impact of MGNREGS, last year’s Economic Survey attributes lower price pressures since 2014-15 to deceleration in rural wage growth. This perception discounts the present need for a rural demand stimulus. Indifferent toplines of FMCG companies reflect inadequate rural demand, a situation that can perhaps be traced to low farm output growth as well as a dip in employment generation under MGNREGS since 2011-12. Any effort to slow down MGNREGS job creation by delaying release of funds to such States (for which the UPA too was responsible) will be counter-productive for an economy with demand slack. The drop in jobs can only marginally be ascribed to prosperity in some pockets; the main factor is supply of such jobs not matching demand.

However, the Centre should not be expected to shell out ₹40,000 crore each year for all time to come. A shift away from centrally sponsored schemes should include this one. Since MGNREGS is run by the panchayats, it should be funded primarily by the States. This may ensure that better assets are created. The Finance Commission award to States can be deployed to good effect. The National Development Council should work out a transition. MGNREGS should not assume priority over long-term policy initiatives such as irrigation and revamped crop insurance, which would require generous Central support till the coverage improves.

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Published on February 07, 2016
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