MGNREGA: SUCCESSFUL OR NOT

NAME- DIVYA GAUR

REGISTER NO. 1633438

MACRO ECONOMICS

ABSTRACT

When we dive deeper into macroeconomic policy implications we get to discover both sides of the coin .MGNREGA is one such policy which has been appraised and criticized simultaneously .This essay is an attempt to critically evaluate this policy and find out how MGNREGA has actually affected the current economic scenario in India. The essay broadly covers what exactly is the scheme of MGNREGA, what are it pitfalls and how the government can overcome these pitfalls. References and case studies have been cited from various districts in India in order to provide a better understanding. Lastly the essay discusses that whether this policy has been successful in fulfilling its objective or not.

 

MGNREGA stands for Mahatma Gandhi Rural Employment Guarantee Act. It is a social security scheme introduced in 2005 and operational in 200 poorest districts in India by February 2006. According to the scheme the government is supposed to provide 100 days of guaranteed work to the willing but unemployed unskilled workers within 15 days of their registration. The implementation of this scheme is under the rural development ministry and it is supposed to work in a decentralised manner with the help of local governing bodies. The scheme was designed to hit many birds with one stone and solve the issues like job creation, asset creation, mitigation, migration, financial inclusion and gender equity.

Within 10 years of its completion MNREGA had generated 19.86 billion worth of employment benefitting 276 million workers especially the socially backward section and women. If the workers are enrolled and within 15 days they are not able to secure a job then according to the scheme they are liable to be paid an unemployment wage which is 1/4 ^th the wage rate determined by the market by the state government . This way the scheme proves to be a safety net and strives for an inclusive growth.

The problem that aroused because of the scheme was the wage price spiral. When wages rise, the aggregate demand also rises since consumers are able to demand more with the new income. This leads to a disequilibrium between aggregate demand and aggregate supply since AS remains constant leading to rise in prices of goods i.e. Inflation. During the 1^st budget of NDA, government felt the need to improve investment in the economy; greater aggregate demand was required in order to cater the further needs of the economy especially in the rural sector. Even though Prime Minister Narendra Modi was quite critical about the scheme there was no other alternative scheme that was suggested to revamp or improvise this particular policy.

In 2014, 28 leading economists wrote to the prime minister asking for dilution of this scheme. According to this panel of economists the MGNREGA was a failure because India tried to replicate this scheme taking inspiration from the western developed nations and was oblivious to the fact that India has a huge unskilled workforce. A total of 26,276 gram panchayats receive funds directly from the state government. Therefore there is likelihood that people will not get work but are qualified to receive monetary benefit. In such a scenario the question arises whether someone will really be willing to work. Statistics on official MNREGA page show that in the FY-16-17 around 25.17 crore people registered to work but the active workers were around 10.91 crores. This means more than half of the workers were receiving unemployment allowances. From the same report it is noted that a state like Rajasthan spends around 43 crores rupees on MNREGA wages which is more than the expenditure mentioned in the state budget for healthcare facilities.

** SOURCE-All data from http://www.nrega.nic.in

A study was conducted in Gangolihat Block in Pithoragarh district of Uttrakhand to cross check the implementation of MGNREGA. In the last two years, the state government has spent over Rs 3,919,153 against the estimation of Rs 6,073,400 in two years on the scheme.The scheme has yielded unsatisfactory results due to issues of corruption and timely wage imbursement. The fault lies in three aspect; work planning i.e. estimation of the amount of work. Second, work execution i.e. the mismatch between actual job card holders and actual workers. Lastly wage distribution, due to corruption and delay workers prefer to work under private contractors rather than enrolling in the scheme.( Bohra, Narendra Singh; 2014)

The question remains unanswered. Is government paying a high price for MGNREGA, is the productivity of labour getting affected, is there an efficient and effective use of resources that is scalable. The scheme has been accused time and again for causing a high rate of inflation in the economy. In India it is witnessed that there has been a high rate of inflation post-recession of 2008. In November 2013 it skyrocketed and reached its peak with 12.1 per cent inflation. RBI came up with a study suggesting that MGNREGA was the cause of wage price spiral in the economy. But the recent studies refute this fact and say that MGNREGA is not the only public investment which is causing the inflation. A study published in the RBI, Recent trends in rural wages- An analysis of inflationary implications by GV Nadhanael  suggests that MGNREGA does not have a vital role to play in pushing up the inflation since its reach is not widespread ; even in the places where it has been implemented people have not received 100 per cent guaranteed work. Moreover in the recent time the inflation rate has reduced tremendously even though MGNREGA is still in progress. It is very necessary to understand that providing employment or pushing the money in the economy does increase the aggregate demand but it is not the only reason that leads to increase in the general price level. MGNREGA has affected labour supply; rural economy is getting worsened because of unavailability of labour as more and more people are getting soaked in the scheme rather than actually going for work.

Some studies conducted across India suggest modifications in the MGNREGA scheme. While there are other studies that suggest to overthrow MGNREGA social net and provide other social security benefits. Improvisation can be done is the way work is planned in the rural economy by conducting rural campaigns, creating awareness and asking help from the local dwellers in work estimation. NGO’S and SHG’s can play an important role in work supervision and surveillance. Lastly remuneration can be provided through bank accounts in form of fixed deposits so that workers do not face hassles in securing their wage at the right time. (Bohra Narendra Singh; 2014). Economists like Pranab Bardhan and Abhijeet Bannerjee advocate alternative options like universal unconditional cash transfer (UCT).This policy gives an incentive to the workers to allocate their resources according to their needs and is also cost effective as it does not require monitoring and supervision. A second alternative that they provide is UCT combined with vocational and skill training to the women. This makes them more self -reliant and ensures that they get better work opportunities in future. (Tehelka; Feb 18, 2016).

MGNREGA has had a positive impact in women participation in rural India. Kerala had the maximum women participation at 93 per cent, while Uttar Pradesh and Jammu and Kashmir showed low levels of women participation at 18 per cent and 17 per cent respectively. National Federation of India Women (NFIW) in their report for Ministry of Rural Development (MORD) (2008) “A study On Socio-Economic Empowerment of Women Under National Rural Employment Guarantee Act (NREGA)” in Rajnandgaon (Chhattisgarh), Jhabua (Madhya Pradesh), Mayurbhanj (Orissa) and Cuddalore (Tamil Nadu) recorded that women’s proclamation is the growing contribution of women workers to the sources of their households livelihood. In Cuddalore it was 81 per cent and 96 per cent in Rajnandgaon who said to have spent their earnings from NREGA on food and consumer goods. Overall if we see there are also considerable percentage of workers who were paying the expenses for their children’s education and a small no. of workers paying off the accumulated debt.

The bottom line to this understanding is that India is a developing country with a large section of people living in the state of destitution and poverty in the rural areas. Schemes like MGNREGA do assume importance but the problem is the nature of jobs that are being provided. Government is paying a huge cost for this project and productivity of factors of production plays an important role. What is essential to note is how to implement the scheme in a better way so that it contributes better to the GDP growth rate. To reshape and remould the old idea of MGNREGA and make improvisation by adding or deleting things that falls under its ambit. Although unemployment has disappeared in paper, India still faces a challenge of disguised unemployment. A total of 45,583 crores of money were released in the economy in last fiscal year but only about 51,901 crores was utilised and spent. Whether MGNREGA is worth the political and financial cost is a conundrum that economists and politicians are trying to figure out. Policies like such are a source of vote bank politics and gets democratically institutionalised and hence faces a policy lag , meanwhile the other factors cause the inflation to rise in the economy.

CONCLUSION

MGNREGA has helped in rejuvenating the rural economy. It has achieved its objective in eradicating poverty to a great extent by securing work for 206 million people below poverty line. It has been criticized on many grounds. On grounds of corruption Economists like Jagdish Bhagwati and Arvind Panagariya have described NREGA as “an inefficient instrument of shifting income to the poor” Often in implementation of such schemes a large part of benefit is siphoned by the middlemen. Hence the policy definitely needs amendments and improvisation to cater to the needs of the people in a better way.

BIBLIOGRAPHY

                                       

1. A Half Step: The government falls short of constitutional requirements even after it indexes wage rates in MGNREGA to inflation. (2011). Economic and Political Weekly, 46(3), 8-8.
2. Bohra, Narendra Singh, MGNREGA as a Tool for Rural Development Productivity; (Oct-Dec 2014): New Delhi Vol. 55, Iss. 3, (244-251.)
3. Time to look beyond MGNREGA (Feb 18, 2016), https://search.proquest.com/docview/1765815375?accountid=38885, HT Media Ltd. Tehelka; New Delhi.
4. Nadhanael GV, Recent trends in rural wages- An analysis of inflationary implications, https://rbi.org.in/scripts/bs_viewcontent.aspx?Id=2846
5. National Federation of Indian Women (2008): “A Study on Socio Economic Empowerment of Women under National Rural Employment Guarantee Act” Ministry of Rural Development (MORD).
6. Ambasta, P. S. Vijay Shankar, Shah Mihir (2008): “Two Years of NREGA: The Road Ahead” Economic & Political Weekly, February 23- 29, Vol. XIIII, No. 8, PP. 41-50.
7. Ghose, A. (2015). Addressing the employment challenge: India’s MGNREGA(No. id: 7469).
8. nrega.nic.in
9. ilo.org

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