| The National Rural Employment Guarantee Scheme (NREGS) is in news these days primarily for two reasons: first, the enormous impact it could have on poverty alleviation in rural areas (and also in helping reduce migration to urban areas in times of economic distress), and second, its potential to break the back of the country's finances.
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| In broad terms, the NREGS proposes that up to 100 man days of unskilled employment be provided to every household. The most widely accepted cost estimate for the nation-wide scheme is the one made by economist Jean Dreze, a member of the National Advisory Council for the Common Minimum Programme.
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Maharashtra Employment Guarantee Scheme | |
Year |
Total expenditure
(Rs crore) |
Man days of work
(crore) | |
1999-00 |
493.97 |
9.49 | |
2000-01 |
578 |
11.12 | |
2001-02 |
914.65 |
16.17 | |
2002-03 |
889 |
16.83 | | 2003-04 |
1,050.71 |
18.53 | |
Sources: Government of Maharashtra and the Census of India |
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| That is, Rs 100 per man day x 100 days = Rs 10,000 per household x four crore below the poverty line (BPL) households = Rs 40,000 crore.
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| Of the amount of Rs 100 per man day, Dreze estimates that Rs 60 would go towards wages and Rs 40 towards materials and administration. In other words, in a full year, Rs 24,000 crore would go towards wages and Rs 16,000 crore towards materials and administration.
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| While the figure for wages (Rs 24,000 crore) looks perfect arithmetically, this figure is not just an overestimate but a gross overestimate; it is extremely unlikely that 400 crore man days of work will be sought.
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| This is evident if one examines the experience of the long-operating Maharashtra Employment Guarantee Scheme (MEGS).
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| Though the MEGS and the proposed NREGS are both "self-selecting" schemes, it is worth noting one significant difference between the two.
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| The proposed NREGS provides employment for a maximum of 100 man days per household. The MEGS, on the other hand, has no upper limit on the number of days in a year when employment can be sought by a person.
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| In fact, the concepts of a "cap" and of a household are alien to the MEGS "" each adult can seek employment in his own right for as many days as he wishes. In other words, the MEGS is a much more liberal scheme than the NREGS.
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| However, the wage payments in the MEGS are "graded" and are somewhat lower than the Rs 60 in the proposed NREGS. Table 1 shows the data for the total expenditure incurred (wages + materials + administrative costs) and the number of man days of employment guarantee scheme (EGS) work generated in Maharashtra by the MEGS for the past five years.
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| It would be fair to say that rural Maharashtra, in the main, is not a very prosperous region. Parts of Marathwada, Vidarbha and northern Maharashtra are extremely poor and have been hit by severe droughts in the past few years.
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| In addition, according to a Maharashtra government website, there are around 55 lakh BPL households in rural Maharashtra versus four crore for the whole of India, that is, Maharashtra has 13.75 per cent of India's BPL households (and 7.5 per cent of India's rural population).
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| In other words, let it not be said that the population of rural Maharashtra is particularly affluent in relation to the rural population of the rest of India.
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| Let us extrapolate the Maharashtra figures to the national figures based on the respective adult rural populations of Maharashtra and all India.
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| The extrapolations, both by the "number of days" route as well as the "money spent" route, suggest that Dreze's estimates are inordinately high.
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| The extrapolated figures in Table 2 suggest that savings of more than 40 per cent are possible on wages alone even in comparison with the total cost of the relatively generous "no caps" MEGS.
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| If the Rs 13,323 crore total cost figure in Table 2 is compared with the total NREGS estimated cost of Rs 40,000 crore, then the savings would be almost 67 per cent.
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| Or, if we extrapolate from the 18.53 man days of MEGS work "consumed" by its 55 lakh BPL households in 2003-04 to four crore national BPL households, the estimate of number of man days for the NREGS comes to 135 crore man days. This is just 34 per cent of Dreze's estimate of 400 crore man days.
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| In our opinion, these extrapolations (low as they seem in relation to the NREGS estimates) are themselves on the high side for the following reasons.
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| First, this extrapolation from Maharashtra's year of terrible drought is absolutely the "worst case" scenario. An assumption underlying this extrapolation is that there will a severe and simultaneous drought in every single state.
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| Second, the extrapolation assumes that every state operates an MEGS-type "liberal" EGS with no "caps".
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| Third, the MEGS data shows if the unskilled work covers activities such as soil conservation, rural roads, digging and deepening of wells, afforestation and so on, there is no reason for material/administrative costs to exceed 20 per cent of the total cost versus the 40 per cent estimated by Dreze.
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| Finally, the MEGS has been dogged by abuse. The EGS scandal in Dhulia, uncovered by the intrepid collector Arun Bhatia many years ago, never fails to remind us that there are numerous bogus entries in the eligibility rolls, which get translated into even larger bogus entries in the musters for work done.
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| With a new IT-driven system, these leakages could be curbed to a considerable extent.
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| The NREGS is today a political hot potato. On the one hand, the government wishes to proceed "softly, softly", initially covering a limited number of districts. On the other, there are those who want to go the whole hog and cover the entire country.
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| There are questions being asked. Is there enough money in the kitty? Why can't the money be diverted from other wasteful schemes? Are there more worthy causes such as education?
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| We do not wish to get involved in that debate but only wish to point out that the NREGS estimates are clearly on the high side and a more realistic estimate of costs might lead to a more balanced assessment of the merits of the scheme.
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| (Dorab Sopariwala is an economic analyst; Venkat Chary is former additional chief secretary (finance, planning and home department), Government of Maharashtra) |
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