Macroeconomics

Mahatma Gandhi National Rural Employment Guarantee Scheme: Falling demand or funds crunch?

  • Blog Post Date 08 August, 2012
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Abhiroop Mukhopadhyay

Indian Statistical Institute, Delhi Centre

abhiroop@isid.ac.in

The National Rural Employment Guarantee Scheme (MNREGS) - India's flagship job guarantee scheme - provides every rural household in India with a guaranteed 100 days of work in a year at minimum wage on public projects. Yet many commentators argue that there is falling demand among rural workers for these jobs. This article challenges this view and calls on better data collection to avoid wrongly taking away the right to work.



Ram Swaroop (not his real name) is a 50-year-old man from a village in the Karauli district in Rajasthan. He is from a caste classified by the government as in need of special support to compensate for years of discrimination (currently classified as "Other Backward Castes"). He is the head of his household comprising his wife and three children. He has been landless for the last ten years, perhaps longer. When he was interviewed in 2007, he was working 100 days on public works at a piece rate, which worked out to Rs. 71 per day, provided by MNREGS. When last surveyed in 2011, he said he wanted to work under MNREGS but no work was available. Now he works for a casual wage in the private labour market, which he claims is more uncertain. His inflation-adjusted per capita consumption in 2011 was around 5% lower than it was in 2007. By whatever yardstick we may adopt for poverty, Ram's family remains in poverty, even today.

Of the 180 households randomly sampled in Karauli, 76% claim that they want to work under MNREGS but that they cannot get work. Karauli is a district that was deemed poor enough to receive MNREGS funding right from the scheme’s start in 2006. Ram Swaroop's story of 100 days of MNREGS work in 2007 is no anomaly - 78% of these same households were participating, to varying degree, in MNREGS work in 2007, and yet they struggled to find work under the Act in 2011.

Is the right to work being wrongly taken away?

Is Ram Swaroop's story indicative of a pattern across the rest of Karauli, of Rajasthan...or the rest of India? Is the right to work being wrongly taken away? These questions are important to ask for two reasons:

  • First, it is not correct to assume, upfront, that even if there is withdrawal of MNREGS, it is necessarily a bad thing. MNREGS is, after all, just insurance and in a market economy, the private sector should be the main employer. However, falling employment under MNREGS, even when poverty abounds, begs questions on what is driving this fall.
  • Second, with the looming pressure on government finances, a cut back in funds allocated to MNREGS may well take place. However, such an action should not be based on the assertion (as is being made in the media by some state governments) that there is no demand for work under MNREGS.

Why can't rural workers find jobs?

Ram Swaroop, while poor, and perhaps in need of MNREGA work more than others, is no different from the other 29 sampled households of his village. Almost all of them said they wanted to work on MNREGA but were not getting work. Indeed, 4 out of the 6 randomly sampled villages had no public works going on. In 2007, by contrast, 5 out the 6 surveyed villages had some MNREGS works under progress (though the quality of these assets is a different question).

The story suggested by this micro study is reflected in falling fund availability (and expenditure) reported by the official MNREGS website (www.nrega.nic.in). As Figure 1 shows, in Rajasthan, there has been a 46% fall in funds from the peak in 2009-2010 to its levels in 2011-2012. Since wage costs are roughly 70%-75% of total expenditures, this suggests that total number of households benefitting from the scheme has been falling. Indeed, this is not just the case in Rajasthan - most other states (barring Tamil Nadu, Andhra Pradesh and West Bengal) show the same trend.

Figure 1. MNREGS Funds Availability (Rs.in Lakhs): States (2008-2009 to 2011-2012)

Does the decrease in funding reflect the falling demand for work under MNREGS? Clearly, if one were to go by the official government website, it would seem to be the case. According to the website, very few households who demand work do not get work. If one were to make this the basis for judging demand, it follows that since funding has fallen, demand for MNREGS has also fallen. This begs the question of how this data is recorded and what it reflects.

The easiest point of comparison is 2009-2010 for which independent data are available from the 66th Employment-Unemployment Survey from the National Sample Survey Organisation (NSSO). Household demand for MNREGS is calculated by adding those households who have members working under MNREGS, and those who sought work under MNREGS but did not get work.

A comparison of the state-level demand calculated from NSSO data shows that these are considerably higher than those reported by the official MNREGS website. This difference is fairly robust even if we account for the fact that the NSSO numbers are subject to sampling errors. An even more troubling fact is the positive correlation of the proportion by which the official demand data is under-reported and the proportion of workers demanding MNREGS jobs but who did not get work (Figure 2).

Figure 2. Under-reporting on the MNREGS website and demand not met (state level: 2009-2010)

This positive correlation indicates that the measure of demand is not just under-reported but that this under-reporting is selective. Thus the government under-reporting of demand is actually higher where larger proportion of households report they are not able to find work. Use of these figures to draw conclusions about demand should therefore be subject to further scrutiny. This has also a strong implication for the researchers evaluating MNREGS who should subject the data to further scrutiny.

One criticism of this evidence of unmet demand generated out of household surveys is that households will always report that they want work when asked. However, if this were the case, we would be unlikely to find any systematic relationship between poverty rates and demand for MNREGS. While everyone has a right to work on MNREGS, it is expected that the poor will demand the work more than others. A comparison of poverty rates in 2009-2010 and MNREGS demand shows that there is indeed a positive relationship between the two (Figure 3).

Figure 3. State level poverty rates and demand for MNREGS (2009-2010)

Thus, in so far as the poor should demand public works more, poorer states show higher demand for MNREGS. If anything, we have underestimated this impact because the two reported numbers are contemporaneous. Therefore, if households have come out of poverty because of MNREGS, there would be an even higher correlation.

The second fact that should clinch the argument is the relation of the state-level notified wage for MNREGS work and demand for such work. However, in so far as household members are choosing between private and public work, it is the wage on public works relative to the wage on private casual work that should determine demand for MNREGS. As Figure 4 shows, there is indeed a positive relation between the two. Again the bias works in the direction in making our argument stronger. If MNREGS wages have exerted a pressure on private wages to rise, then we are underestimating the correct relative MNREGS wage to private wage. This would make the positive correlation even stronger as the line presented in Figure 4 would be even steeper.

Figure 4. Relative wage and household demand for MNREGS (2009-2010)

Key finding

These two empirical facts strongly suggest that the demand for MNREGS from household surveys is real. What’s more, they diverge greatly from the reported demand by the MNREGS authorities. This begs the question of how demand is being recorded. Since MNREGS has been conceived as a demand-driven scheme, a failure to record demand correctly would be a deathly blow. It is perhaps this weakness in the implementation of the scheme that is being used to phase down the funding in many states.

Meanwhile, Ram Swaroop is completely ignorant on how to demand work. He is told by the Sarpanch that the money has not come from the higher authorities. Rajasthan was one of the top performing states in terms of MNREGS in 2009-2010. Very few reported not getting work. It gave employment to a large number of women. Yet while poverty has perhaps declined since, it has not gone down enough to validate such a drastic cut in funding.

Further reading

  • Mukhopadhyay, Abhiroop (2012), "The Political Economy of NREGS Implementation", Mimeo
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