Tuesday, December 28, 2010

Is NREGS a loot scheme?

A more appropriate name for the National Rural Employment Guarantee Scheme (NREGS) would be National Rural Looting Guarantee scheme. It is an open secret that NREGS while claiming laudable objectives is lining the pockets of a few, distorting the entire rural economy and creating grave social disharmony, because swathes of people are excluded.

The British India Famine Code (1883), and two 20th century economists, John Maynard Keynes and Milton Friedman, are the forefathers of work-for-the poor schemes. The British Famine Code countered frequent famines by providing work on demand during famines. Once a famine was declared, then the Famine Code came into effect. John Maynard Keynes theorised that during depressions, work can be created to stimulate the economy. But he meant actual work and President Franklin Roosevelt of USA implemented the ideas during the 1930s and this led to substantial permanent assets in USA.

Milton Friedman, once a much derided economist, and a teacher of this writer at University of Chicago, is actually having his Cash-Transfer ideas implemented by developing countries, where he was earlier an anathema. But the Famine Code, Keynes and Friedman have one thing in common: They wanted asset-creation or honest transfer of cash to the recipient.

Friedman said simply give cash or coupons to beneficiaries. There should be no fiction of government programmes.

Let the people decide what to do with the cash.

The problem is that NREGS is a pure cash-transfer scheme clothed in ridiculous robes of "work on demand", "muster rolls" and other duplicitous words in Indian political lexicography. No politician speaks against NREGS as it appears anti-poor. Further, politicians feel why make enemies of the corrupt? Actually, the NREGS deliberately excludes farmers and is hence "exclusionary and not inclusionary". Professor John Dreze, a supporter of NREGS, argues that earlier rural employment programmes were in the hands of contractors and politicians. They made money by submitting fudged, inflated muster rolls. NREGS, on the other hand, will bring in radical change and prevent corruption as transparent safeguards are in-built. Muster rolls will be displayed and wage details will entered in labourers' "Job Cards". The main responsibility for implementing NREGS is with Panchayat Officers and so on.

The entire argument is based on honest panchayats and officers. NREGA can work in an ideal panchayat -- that is where honest people are elected and money, bribery, caste and terror play no part. Importantly, it assumes all government functionaries are saints. But the fact is there are no ideal panchayats.

NREGA is supposed to operate like this.

The honest sarpanch gives all villagers work; at the end of an 8- hour day, Rs. 100 is given to every worker. Of course, there is only one problem. Nowhere in India is there such an ideal village, with an ideal sarpanch or honest government officials.

In the real world, the sarpanch cuts deals. He enrolls relatives and supporters.

Wages are shared amongst the sarpanch, government officials and beneficiaries.

Beneficiaries are happy colluders since they get at least Rs 60 for not working.

Why question the sarpanch and officials when they give you Rs 60 for free? Get your family included and make Rs. 250 every day. Villagers are willing accomplices. Like thousands of "ghost workers" in Delhi, in villages there will be 15 crore fake workers.

Till recently, in Rajasthan, little money was spent for Panchayat elections. In recent Panchayat elections, Rs. 50 lakh was allegedly spent for sarpanch's post as he controls huge sums of NREGS moneys.

This is the new social transformation in villages. An MP had Rs 10 crores over five years as his fund. Now a sarpanch has more than an MP.

In Delhi, government and civil society think that this can be fixed. The solution is to devise "targeted delivery". Workers get only Rs 60 a day while they should get Rs 100, so give them smart cards and send money directly. But nowhere does the NREGA manual tell how to create an ideal panchayat and honest officials. Even with smart cards, the problem is that someone has to select workers, the work, and certify that the work is done. Therefore, money has to be paid at every step.

Beneficiaries are willing accomplices as money is free with there being no work to be done. To control corruption in NREGS, you need a million CBI officers because the participants are happy accomplices as the money is free.

NREGS has many weaknesses. For one, farmers have been deliberately left out.

Farmers commit suicides by the thousands and yet a farmer with two acres of land is out of NREGA. In southern states, where parties like Justice Party, DK, DMK were formed purely to fight upper castes 90 years ago, there is a suspicion urban intellectuals are behind moves to disempower farmers due to the traditional hostility to farmer- castes.

The other issue is that when crores of workers are involved how do you supervise the supervisors? If you are a favoured party, then work will be light and hours few. Otherwise, you get difficult work so that you flee. The budget for the NREGS in 2010 is Rs 40000 crores. This is more than the salaries of the entire police force in India. Fantastic permanent assets could have been created with the money, yet in 2009, Rs 39,000 crores was spent without anything tangible being created.

Unless permanent assets are created, NREGS will sap the entire economy.

Another critique of NREGS is that instead of giving people incentive for selfemployment, NREGS creates "dependency" on the government. Those who are assured of an income will not seek work. If you oppose the powers-that be, you will be left out or marginalised. The worst kind of dependency is thus created.

Powerful leaders in Delhi think they can pass any law and budget. There is clearly no punishment for poor laws and waste.

Lakhs of crores were spent on the Jawahar Rozgar Yojana. Why has the JRY been forgotten?

This year the government will spend Rs 40000 crores on NREGS. When you have 15 crore people involved, there will be corruption. There are schemes called "helicopter schemes" in some countries, as it is money distribution without strings. So, you may as well take the money and start throwing it on villages from helicopters. Since no actual work is done in NREGA and no assets created, what is the harm in throwing money from helicopters? It will be a genuine cashtransfer scheme of the kind advocated by Milton Friedman. Relief food is thrown from helicopters. So why not cash? The British who ruled India, Keynes and Friedman knew you cannot control corruption.

They therefore insisted on asset creation or direct cash- transfer. No mealy mouthed homilies for them. In this context it is not clear how a smart card will stop kickbacks from beneficiaries to officials? Bribes are after all given only after the work is done and the sequence of getting money has no impact on bribes.

So we have a situation where the largest welfare scheme ever devised in India does not involve asset creation and excludes farmers, the mainstay of the country. The powerful supporters of NREGA should realise that unless asset- creation becomes the focus of NREGA, it will meet the same fate as JRY and a host of endless and hapless ancestors.

The writer is an economist and analyst

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