The National Rural Employment Guarantee Scheme :                                     Home

It promises Rs 60 per day for 100 days of employment a year to one member of every rural unemployed family. The Central government funds this scheme, with the State expected to contribute 10 percent of the cost. The cost in the first year alone is expected to be around Rs 15000 crores (or approximately $3.3 billion.) The NEGS is not novel. Maharashtra has had an employment guarantee scheme for decades. According to Sharad Joshi, it “has produced few permanent assets. And the EGS in Maharashtra is synonymous with corruption. Government officials concoct false registers of attendance.” Corruption is not unexpected when money is involved and the transaction is between officials who have the power and control over the money, and the poor unemployed labor who would be willing to take only a share of whatever is due to him or her. It has been variously estimated that only about 25 percent of any relief money actually reaches the intended beneficiary. Politicians and bureaucrats steal the majority of funds. As a matter of equity and fairness, the rural poor do need some kind of safety net. The design of exact mechanism of a safety net is not easy considering the scope of the problem. But a number of questions that arise in connection of the NREGS and needs to be investigated. Even if the NREGS is not beset with corruption and fraud, is it the best mechanism? Is the scheme consistent with the reforms required in the economy? Will the secondary effects drown out whatever primary benefits that accrue to the rural people? The basic objection I have to the scheme is that is in effect it is a purely income redistribute scheme. A purely redistributive scheme is not objectionable in and of itself provided there is sufficient production but the production suffers from mal-distribution. However, the basic fact is that the production itself is insufficient. So in this case the all effort should be made to increase production and simultaneously seek a more equitable distribution. The money spent on the NREGS has an opportunity cost. What is lost is the government’s ability to fund production enhancing projects. Suppose the money was spent for a massive drive to provide primary education and health services to rural areas coupled with a reduced family size drive. Or it was used to improve the infrastructure of the country such as building a modern rail transportation system. Any of a large number of public works projects would generate large employment opportunities and lead to capacity building and thus to an increase in the total national income. In this case, it would not be just an “employment generation” but “income generation”. The problem is that the focus of the proposal is flawed. It focuses on employment instead of focusing on increasing incomes. The distinction is important. Income, to an individual, is a share of the total production that the economy produces. By focusing on the employment and not on the production, the scheme merely redistributes the proceeds of a limited production. In summary, the NREGS will have the expected effect of deeping poverty and enriching the bureaucratic and political intermediaries. That the Left support this misguided scheme should have been sufficient proof of its effects. But I guess we will have to go through with this despiriting exercise once again before we learn the lesson that increasing employment is not the same as increasing production