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Resource centre on India's rural distress
 
 

NREGA Budget Disappoints on the Downside by Tom Wright
One of the big surprises in the 2011-2012 budget was that spending on the country’s landmark rural employment program remained flat, disappointing activists who see it as a way of redressing growing wealth disparities.

The program has since 2006 guaranteed 100 days of work a year for unskilled laborers to build rural infrastructure like irrigation ditches and roads.

The Congress party has made the program, known as the Mahatma Gandhi National Rural Employment Guarantee Act, the centerpiece of its pro-poor economic agenda.

Initially, the program paid 100 rupees ($2.2) a day. But the government agreed in January to tag wages to inflation, pushing daily rates up by between 17% and 30%. Those rises also balloon the costs for the central government, which pays 100% of salaries under the program.

How then did the government announce Monday that it would spend 400 billion rupees ($8.8 billion), or about on the program next fiscal year, unchanged from the current period?

Many people, including social activists who helped design the program, had expected a 50% increase to a budget of around 600 billion rupees ($13.2 billion).

Sushma Nath, the top bureaucrat at India’s Finance Ministry, explained on Monday that states are sitting on $3.8 billion that they have yet to spend, so there’s no need to budget more now.

States have faced bureaucratic snafus in disbursing so much money. But overall, the program has been hugely popular, and delays in spending budgeted funds are nothing new.

Perhaps more tellingly, Ms. Nath said the program was intended to offer last-ditch employment to India’s poorest citizens, not attract workers away from higher-paying manufacturing jobs.

This appears to be a nod to critics who say the employment program is throwing too much state money into rural infrastructure projects of dubious value, while steering workers away from the private sector.

Nikhil Dey, a co-founder of the Laborer and Farmers’ Strength Association, a nonprofit which advised the government on the program, said the lower-than-expected budget was a worrisome sign that the government might not be willing to fully fund an expanded program.

Mr. Dey says the program has pushed up wages for India’s poorest people and should be expanded. “We’re all going to be very critical of this,” he said.

Another, less-charitable, analysis could be that the government Monday was simply trying to keep the ballooning cost of the program off its books for now to allow it to show fiscal belt-tightening to a watchful stock market.

This year’s total budget shows just a 3.4% rise in spending from last year. But as the revised numbers for the present period, which will end March 31, showed, spending for the full year can rise enormously from what the government estimates during the budget presentation.

In a sign of this, Ms. Nath said the government could allocate more money to the program during the coming fiscal year if there is demand from workers. Chief Economic Adviser Kaushik Basu also told the Wall Street Journal on Monday that the government is mandated under law to increase funding for NREGA during the year as necessary.

And with salaries now linked to rising prices, one of the few inflation-indexed jobs in the country, many analysts expect that demand to keep coming.