Poverty & Inequality

DUET: Weighing the costs and benefits

  • Blog Post Date 21 September, 2020
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Farzana Afridi

Indian Statistical Institute, Delhi Centre

fafridi@isid.ac.in

Presenting her perspective on Drèze’s DUET proposal, Farzana Afridi contends that in the net, we need to evaluate the relative cost and benefit of having a potentially administratively complex urban employment guarantee programme as opposed to a simpler income guarantee scheme, within a general equilibrium framework.

The Covid-19 pandemic is unprecedented and the Indian economy is going through challenging times. The demand for work under MNREGA (Mahatma Gandhi National Rural Employment Guarantee Act) has been significantly higher than in pre-pandemic period in rural areas, especially during the early days of the lockdown when migrants went back to their villages. Jean’s proposal for a similar programme to create jobs in urban areas, DUET, is justified as job losses mount and the migrants trudge back to the cities.

But before we delve into the question of the design of such a programme, we should be clear about its objective. Is the aim of such a programme only employment creation or more broadly, social protection? Should the programme aim to achieve a single objective or multiple objectives, for example, creation of infrastructure along with employment generation? Given the objective, from an efficiency perspective, what would be most cost-effective design of the programme? 

If employment generation is the main objective of such a programme then public infrastructure programmes might be the most effective way of generating work for unskilled and semi-skilled labour (possibly, without the need for an accompanying skill training programme). Public infrastructure, such as roads, sanitation, and other utilities, are in dire need of creation, upgradation and maintenance as mentioned by Dilip Mookherjee in his comments. Unlike MNREGA where the evidence on creation of rural durable assets has been weak and much less researched than employment creation and its income support role – a gap that needs to be filled – the urban employment programme should put equal emphasis on both aspects of the programme. To this extent, the role of urban local bodies becomes important (as is the case with rural panchayats in MNREGA) in identifying works and implementing the programme. One possible concern with such a programme is the impact it may have on increased migration from rural to urban areas – in that context, the wage rates fixed for labour in this programme should be at par with the rural MNREGA wages in PPP (purchasing power parity) terms. Another issue related to the design of the programme would be incorporating checks and balances to address potential concerns with corruption, as has been the case with the implementation of MNREGA, particularly in its initial phase. 

However, in my view, the primary objective of such a programme should be to provide social protection or minimum income. The time is ripe to think more broadly in terms of a nationwide social protection programme such as the Universal Basic Income (UBI). Pranab Bardhan – among others – has discussed in great detail the design of such a programme and its financing. The pandemic, more than ever before, has underlined the need for such a programme to protect households from shocks such as this, and irrespective of their location, occupation, or current incomes. Furthermore, the UBI will meet the objective of income support more efficiently, that is, it would be less susceptible to corruption and leakages, as one might fear the employment programme might be. The country has already taken several steps towards such a programme, for example, under the Jan Dhan Yojana, Rs. 500 per month (a much smaller income support than deemed necessary by several economists, to rejuvenate demand that has been adversely affected by the pandemic) has been deposited into the accounts of women since the pandemic began. Hence the infrastructure is more or less in place to allow the government to roll out a minimum or basic income support programme. 

In the net, we need to evaluate the relative cost (both explicit as well as implicit, that is, the efficiency aspects) and benefit (in terms of social welfare broadly, which includes possible creation of urban assets and urban rejuvenation) of having a potentially administratively complex urban employment guarantee programme as opposed to a simpler income guarantee scheme, within a general equilibrium framework.

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