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Here’s evidence that NREGA is actually destroying jobs by R Jagannathan

Is the Mahatma Gandhi National Rural Employment Guarantee Scheme (NREGA) a poverty buster? Or is it a job destroyer?

The answer seems to be both, though the scheme of late, has been bedevilled by corruption and many states have lost their enthusiasm for it, forcing the rural development ministry to revamp the scheme last week (read here about the changes).

While the scheme has been attacked for many reasons – bloating rural wages, corruption, lack of asset creation for money spent, and making farming uneconomic — the real problem is that the scheme may be destroying the work ethic – and jobs in general.

So far we have had only anecdotal evidence to support this view. Now, there is actual field research indicating that the scheme may be doing considerable damage.

According to a research paper by Shamika Ravi of the Indian School of Business (ISB), the scheme, while alleviating poverty, is “raising people’s dependence on government” and killing off micro enterprises, reports BusinessLine.

Giving the example of a survey in Medak district of Andhra Pradesh, she says that locals were given Rs 10,000 worth of assets like buffaloes to encourage them to take up dairying and other productive activities.

But, guess what?

Thanks to the 100-day job guarantee scheme, the beneficiaries sold off their assets and went to work for NREGA. The newspaper quotes Ravi as saying:  “When we went back after a few months, we found that 67 percent of households had sold their assets as the opportunity cost of maintaining a buffalo was higher than working in NREGA.”

In fact, this observation matches the macro data provided by the National Sample Survey Office (NSSO), which reported very small job growth of 2.2 million between 2004-05 and 2009-10 compared to 92 million jobs created between 1999-00 and 2004-05.

The explanations offered for jobless growth – that more women may be dropping out of the workforce or that many more people are pursuing higher education – are plausible. But here’s the real dope: between 2004-05 and 2009-10, 27.7 million new jobs were created. But these were negated by a sharp drop of 25.5 million in the self-employed (Read a Firstpost report on this).

This is the drop in micro enterprises that Ravi of ISB has noted in Medak.

Could this be true of the whole country? That NREGA is destroying regular jobs in favour of jobs created under the “workfare” scheme?

One could, of course, counter-argue: so what if people are exchanging tougher work like dairying in favour of jobs under NREGA?

The problem is, NREGA hasn’t been too good at creating productive jobs. In fact, the anecdotal evidence is that corruption ensures that many workers get paid for doing almost no work.

Keya Sarkar, writing in Business Standard, tells us how the chatter in Shantiniketan (West Bengal) is about workers getting paid for no work or very little work (read here).

V Kumaraswamy writes in BusinessLine that the huge NREGA spends, far from generating even more employment as workers spend their wages (usually Rs 120 a day), has promoted leisure.

He says, “there is a far-greater-than-expected increase in absenteeism from regular employment –  organised and unorganised –  and consequent increase in wage levels in traditional vocations. Instead of working additional hours and enhancing incomes and climbing aspirational ladders, the rural recipients seem to have given up their regular occupation and chosen to be satisfied with their current levels of income and consumption.”

It is time to undertake a comprehensive study of the systemic impact of NREGA to figure out whether it is doing more harm than good.

Shamika Ravi is clear on one point: “In the long term, the scheme needs major restructuring, as it is raising people’s dependence on government and is creating an upward wage pressure on private wages in rural areas, thereby affecting micro enterprises,” says the BusinessLine report quoted earlier.