MGNREGA: The wrong answer to rural distress

A permanent entitlements strategy does little to address the real problems

A political fist fight has broken out on the 10th anniversary of the landmark Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), which guarantees 100 days of work a year to every rural household. Prime Minister Narendra Modi in a stinging speech last year described the rural jobs scheme as a monument to the failures of the United Progressive Alliance government. His government is now indicating that it will increase spending on the scheme in this year of a second successive drought. The Congress has hit back with accusations of hypocrisy.

MGNREGA is the biggest single public works programme in the world. It provides employment to around one in every six Indian families, according to the World Bank. The vocal defenders of the scheme point to its range of achievements—from empowerment of the rural poor and a push to financial inclusion to the rise in rural wages and prevention of urban migration. But these are unintended consequences that may have also emerged had other solutions such as direct cash transfers been given a fair chance.

As with any other policy intervention, MGNREGA has to be assessed in terms of its own policy goal, as defined by the 2005 law that established the scheme. The law says it seeks to “provide for the enhancement of livelihood security of the households in rural areas of the country by providing for at least one hundred days of guaranteed wage employment in every financial year to every household…” The main challenge that the scheme sets out for itself is clearly to provide livelihood security to rural households. There are two questions that defenders of the rural jobs scheme need to answer. First, is there indeed greater livelihood security in the villages 10 years on? Second, wouldn’t direct income support through cash transfers be a better way to reach the goal?

Successive governments have spent an estimated Rs.3.1 trillion on MGNREGA schemes over the past decade. This is not a small sum of money, especially if spending in past years were to be converted to current prices to take care of inflation. The impact of such spending would have been far higher if the money had been used for rural infrastructure that would have raised productivity as well as helped the structural transformation of the rural economy.

This does not mean that the government should not spend on public works when there is rural distress. There is right now a strong case for higher government spending to ease the pain in Indian villages. Even the colonial government understood this: public works were funded during the terrible droughts of the 1870s. This newspaper supports higher rural spending in drought years. MGNREGA is something quite different. It is a permanent scheme that is not linked with the state of the rural economy. Those who ask whether critics of MGNREGA would want the government to cut back on help in a year of rural distress are essentially setting up a straw man.

Few care to remember today that India is just coming out of an inflation crisis. One part of the sorry tryst with high inflation is that MGNREGA pushed up rural wages without having much of an impact on rural productivity. Basic economic reasoning tells us that inflation accelerates whenever nominal wages rise faster than productivity. It is also well known that inflation hits the poor the hardest. Paradoxically, the delinking of rural wages from productivity acted as an incentive for farmers to replace men with machines.

Rural India is once again in the grip of immense distress. As B.R. Ambedkar pointed out nearly a hundred years ago, the real solution to rural distress is to be found in rapid industrialization as well as urbanization. The entitlements strategy of the United Progressive Alliance was supposed to provide a permanent cure to the sort of rural distress that India is currently battling. MGNREGA should be judged in terms of what it set out to do rather than its unintended consequences.

Has MGNREGA achieved its policy goal in the past 10 years?