Rural employment guarantee scheme may have adverse impact: Study

The Mahatma Gandhi National Rural Employment Guarantee Act, enacted in 2005, may be destroying enterprise in rural areas and creating an army of unskilled labourers unfit for employment elsewhere, finds a new study.

The study, undertaken in 100 villages of Medak district in Andhra Pradesh and funded by the Consultative Group to Assist the Poorest (CGAP) of the World Bank and Ford Foundation revealed that casual labour, which the rural employment guarantee scheme is creating, may deter long-term growth.

While describing MGNREGA as a good scheme to put money into the hands of the very poor in the short run, the study advocated the need to implement it in a way that does not hamper enterprise.

It found that the higher wages under the Act had increased the cost of labour for many enterprises, including agriculture.

The conclusions were reached after a three-year-long Ultra Poor Programme (UPP) failed to show any impact in India, while similar pilot projects in countries like Pakistan, Bangladesh, Haiti, Peru, Ethiopia, Yemen, Ghana and Honduras funded by the same organisations yielded good results.

Under the UPP, aimed at lifting ultra poor households out of extreme poverty, $357 (about Rs.18,000) was spent on each of the 3,485 ultra poor members.

Shamika Ravi, an assistant professor in economics and public policy at the Indian School of Business (ISB) Wednesday shared with the media the outcome of the first complete evaluation study worldwide.

The NGO wing of Swayam Krishi Sangam implemented the scheme, under which targeted individuals chose micro enterprises like buffalo, goat or sheep rearing, and poultry farms, telephone booths, tailoring shops, grocery shop, tea stalls and horticulture nurseries.

The people chosen for such enterprises were offered all services, including training and stipend to meet the expenses.

"After three years we found that there is no net impact in terms of income, consumption and asset accumulation. What was worse, more than half of the people to whom such assistance was offered had sold their assets and gone back to casual labour under the government scheme," she said.

"Enterprise was not giving them anything over and above daily wages. Running an enterprise is not profitable anymore," Ravi added.

The implementation of the UPP started in 2007, around the same time when NREGS was launched; although the act was passed in 2005, it was implemented two years later.

National Sample Survey data also shows that between 2004-05 and 2009-10, real rural wages increased 27 percent across the country while in Andhra Pradesh, where NREGS implementation is far better, the increase is 38 percent.

"Doing casual labour can't be the way. People eventually want regular income," Ravi said, suggesting that NREGS be implemented in a way which allows enterprise to thrive.

Terming NREGS a political and not an economic decision, she, however, said the programme should continue as India has a very large number of very poor people.

"The problem is when it gets too political. There is too much upward pressure to increase number of working days and the wages, especially before elections," she said, and suggested that work under the programme should be restricted to 100 days a year so that rural poor who don't get work during the summer are provided employment.