1

Compilation of Articles Written on the Mahatma Gandhi National Rural

Employment Guarantee Act

Surjit Bhalla

List of Articles:

1. Move from NREGA to Cash Transfers, Indian Express, Dec. 12, 2014

2. PDS or NREGA - The Corruption Must Go On, Indian Express, Nov. 1, 2014

3. The Unimportance of NREGA, Indian Express, July 24, 2013

4. A very poor programme, Indian Express, Mar. 2, 2012

5. More bang for the buck from Non-NREGA work (with Sunil Jain), Indian Express, Feb.

24, 2011

6. Does NREGA really work?, Business Standard, Mar. 27, 2010

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No Proof Required

Move from NREGA to Cash Transfers

By

Surjit S Bhalla

(Indian Express, Dec. 12, 2014)

Blurb: Because, for too long, the government and economists have only played at helping the

poor

All Mr. Modi had to do was to suggest that expenditures for NREGA be restricted to the poorest

100 districts in India. Soon after, the sound and fury of the proponents of NREGA descended

upon those willing to disagree with them.

In a recent article, Professor Abhijit Banerjee of MIT, one of the staunchest supporters of

NREGA, plaintively asks: "What's the plan for MNREGA? Modi has to explain" (Hindustan

Times, Nov. 26, 2014). Abhijit admits that while there have been leakages in NREGA in the

past, but according to the latest NSS 2011-12, the leaks have been substantially plugged, such

that there is only 20 percent leakage at present. Hence, there is no reason for PM Modi to reduce

the size of NREGA, and his demand for an explanation. In Banerjee's own words:

"Yet there are a lot of people who are beneficiaries of this (NREGA) and will miss it when it is

gone ... Both sides (and indeed the entire nation) deserve to be told why this is the one UPA

programme that has been singled out for the axe... [It is] one of the largest welfare programmes

in the world. And contrary to what is sometimes suggested, these days, most of this money does

not end up in the wrong pocket. Clement Imbert from Oxford University compared the number

of days of MGNREGA employment reported in the National Sample Survey in 2011, with the

corresponding report in the MGNREGA database, and found a gap of 20% — implying that 20%

of the reported days of work did not happen. But 80% did."

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For the debate to begin, and for Mr. Modi to answer the plea of Mr. Banerjee and other leading

28 economists who have demanded a re-look at the decision to reduce this program, it is

important to get the facts right.

The problem with NREGA is that there is a lot of leakage i.e. individuals receive benefits and

work payments for work that they have not done, or have done so only on paper, or are not poor.

One of the great ironies of history is that the chief architect of NREGA, Dr. Jean Dreze, had

written an article in 2005 ("Loot for Work Programme", July 1, 2005 Times of India) which dealt

with the extraordinary corruption in employment programs.

Dreze: "The problem may be illustrated with reference to the maintenance of "muster rolls".

These muster rolls are crucial documents, which contain (or are supposed to contain) detailed

information on the number of days of work performed by, and wages paid to, each labourer...

In Palamau, muster rolls were fudged with some sophistication. Some had names of labourers on

the left-hand side, and their signatures (or thumbprints) on the right-hand side. The middle

columns, with details of work done and wages due, were left blank, presumably to be filled at an

appropriate time by enterprising officials. The lack of transparency of muster rolls is only one

illustration, among many, of the systematic failure to enforce the NFFWP guidelines".

Mr. Dreze convincingly illustrates the magnitude of corruption, and the modus operandi of

panchayats, bureaucrats and political officials administering such programs. Sadly, and much to

the regret of the needy poor, Mr. Dreze's solution was to massively increase the size of the

program, make it national, and make it the flagship program of Ms. Sonia Gandhi's plan to win

hearts and votes i.e. the invention of NREGA. Equally sadly for the Congress, the plan to win

votes did not quite work out.

The table documents the NSS data on rural work programs conducted in India since 1983. The

NSS figures provide a convenient cross-check on figures routinely, and brazenly, put out by

government departments. The official (NREGA database) estimates of the Ministry of Rural

Development (MRD) are also reported. NREGA was not prevalent in 2004; by 2007, it had

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spread to 100 districts, and by 2009, the grand plan had fully covered all the districts of India. A

reasonable indicator of leakage (read corruption) in these public works programs is the amount

of employment (and therefore wages) the poor access. The following facts emerge from just a

cursory perusal of the table. The poor are defined as those whose monthly expenditures were less

than the Tendulkar poverty line.

NREGA Facts:

1) In 1983 and 1993, around three-fourths of the rural poor were beneficiaries of food for work

programs. By 2011, the poor were less than half of the beneficiaries of employment programs

meant for back-breaking (not bank account enhancing) work. And 2011 is the lowest poor

beneficiary percentage (45 percent) on record.

2) The official statistics on NREGA employment are about 3 times more than what the NSS data

indicates - and this is for both 2009 and 2011. If we did not have the NSS data, the MRD could

continue to bluff its way for more funds for the "poor".

3) In 2011-12, NREGA expenditures were Rs. 31,000 crores and non-NREGA expenditures on

PMGSY (Pradhan Mantri Gram Sadak Yojana) were Rs. 18,000 crores. In addition, state

budgets also have a non-NREGA public works component and it is likely that non-NREGA

public works involve approximately the same expenditure as NREGA expenditures.

4) On what basis does Mr. Banerjee obtain a figure of only 20 % leakage in 2011? As the table

shows, this figure is obtained by adding up all public works programs undertaken by the

government of India, centre plus state, and defining all such programs as NREGA. It is likely

that both the enumerators and the respondents to the NSS survey were unsure of whether a public

works program was NREGA sponsored or not; but to believe that all such expenditures were

NREGA is a gross, and grotesque, assumption.

5) One generous method of attributing employment generation to NREGA is to assume that 50

percent of non-NREGA employment is actually NREGA. This raises total amount of NREGA

employment to 1391 million workdays in 2011, but it is still only 64 % of the number the MRD

would have us believe.

These simple facts about the NREGA program should convince most people that the time has

come to not reduce, but eliminate, public expenditure programs from the "in the name of the

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poor" shelf of programs. Why not junk NREGA and instead move to cash transfers for the poor?

A recent study by Renana Jhabwala and her colleagues (Basic Income: A Transformative Policy

for India) convincingly documents that cash transfers are the progressive and the least corrupt

way forward in delivery of services to the poor. If the leading economists really wanted to help

the poor, shouldn't they be writing letters and pleading with Mr. Modi to speed up cash transfers,

rather than continue with corrupt NREGA?

Far too long the government of India and many of my colleagues have tinkered at the margin of

helping the poor. Around the world, governments have replaced indirect transfers with direct

transfers. If PM Modi is persisting with NREGA even in its reduced form, it is only because the

vested (and corrupt) bureaucratic and political interests are more powerful than perhaps even Mr.

Modi had imagined. How else do you read the facts regarding NREGA?

Surjit S Bhalla is Chairman of Oxus Investments, an emerging market advisory firm, and a

senior advisor to Zyfin, a leading financial information company. He can be followed on Twitter,

@surjitbhalla.

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NREGA should be Junked -- The Evidence

1983 1993 2004 2009 2011

Employment in Public Works Program (in millions)

Official NREGA Estimates

(MRD)

2836 2188

NREGA

919 809

Non - NREGA 582 499 247 1362 1165

All Public Works 582 499 247 2281 1974

Adjusted NREGA

1600 1391

Employment as a Percent of Official NREGA Estimates (in %)

NREGA

32.4 37.0

All Public Works

80.4 90.2

Adjusted NREGA

56.4 63.6

Percent of Poor Accessing NREGA (NSS) (in %)

NREGA

37.0 23.7

Non - NREGA 71.6 78.8 50.3 49.2 44.6

All Public Works 71.6 78.8 50.3 44.3 36.0

Adjusted NREGA 42.2 32.4

Source: NSS for various years, Ministry of Rural Development

* Adjusted NREGA = NREGA + 50% of non - NREGA workers

Notes:

1. The NSS figures are calculated by using the data reported on a daily basis (codes used are: 41 -

non-NREGA works, 42 - NREGA works). These daily values are multiplied by 365 to arrive at

annual estimates.

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No Proof Required

PDS or NREGA - The Corruption Must Go On

By

Surjit S Bhalla

(Indian Express, Nov. 1, 2014)

Blurb: No matter what in the name of the poor scheme you cook up, the poor get less than 15

percent.

There are several reasons why the case for retaining the NREGA employment system, as argued

by 28 of India's leading economists, should be dismissed.

First, it is likely that India's leading economists are likely to be just plain wrong, and naively so,

in their assessment of the worth of NREGA. While this job provision program has been

christened as Mahatma Gandhi NREGA, I feel it is important to not besmirch the Mahatma's

memory with such a corrupt program.

Evidence suggests that India's leading economists have generally been on the wrong side of

economics and economic history. When the developing world, especially in East Asia, began

changing course in the early 1960s, many of India's "leading" economists stayed behind - and

behind enough to cheer political moves like the Emergency, and economic views like Bank

Nationalization etc. No prizes for guessing that the dominant view of India's "leading

economists" (hereafter ILE) back in the 1960s was towards heavy state involvement in the

affairs of the economy.

Though much has changed in the world, and in India, the ILE view has remained broadly the

same - with minor adjustments. The ILEs are not so brazenly left that they support import

controls or industrial licensing - but they are left enough to support "dole economics" or massive

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government intervention in the name of the poor (though not necessarily for the poor). For them,

it is enough to stop all debate with the simple comeback line - yes corruption is high, yes there

are problems of delivery but at least some money reaches the poor. In their letter, the ILE state:

"Recent research also shows that corruption levels have steadily declined over time...While

corruption remains a concern, experience shows that it can be curbed". I guess corruption, like

beauty, is in the ideology of the beholder, or the economist.

It has been documented by several researchers (also see my article "1960s style thinking on

poverty" - IE/FE, July 18, 2014) that the public distribution system (PDS) of foodgrains is one of

the most corrupt public delivery systems in India, and perhaps the world. The extent of PDS

corruption has been openly acknowledged by every government in power, including the UPA

government. The magnitude of the corruption involved is mind-boggling even for those more

knowledgeable about these matters - e.g. FIFA and the BCCI. In the July 18 article I documented

that the poor (Tendulkar poverty line) in India received only 12 percent of the money spent in

their name. Further, about 50 percent of the foodgrains allocated to PDS just disappears into thin

air - i.e. half of the foodgrains that leave the godowns of the Food Corporation of India never

reach any ration shop. Think of it as black money generation of about Rs. 60,000 crores a year.

This black leakage has been supported by every consumer expenditure survey undertaken by the

NSS over the last thirty years. However, the government in the form of Food Corporation of

India claims that there is zero leakage every year and they have their official website to prove

that they distributed 50-60 million tons of foodgrains every year to the ration shops! The fact that

only 30 million tons actually reached the ration shop is not of much concern, or relevance to the

FCI!

But somehow NREGA is supposed to be different and subject to very little corruption. Why?

Because the defenders like the ILE state that NREGA involves back-breaking manual work and

is therefore self-selecting - only the poorest of the poor would take up a NREGA job. This

assumes that in order to receive money for "back-breaking" work you actually have to break your

back or even be there. Unfortunately, that is not the case. Calculations identical to those

undertaken in PDS evaluations shows that far from having low leakage, the NREGA program is

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possibly even more corrupt than the PDS system. These calculations are based on the NSS

2009/10 labour and employment survey, a survey that contained special and additional questions

meant for monitoring and evaluation of the NREGA program.

Some basic results. The Ministry of Rural Development website claims that in 2009/10, 284

crore mandays of work was provided to 5.26 crore households. The NSS survey indicates that

3.86 crore households worked on NREGA for 147 crore workdays. Leakage - about half (48

percent) and near identical to that of PDS!

But the similarity does not end there. The PDS facts are as follows: Fifty percent of the food

disappears, and the poor receive only 24 percent of the food that reaches the ration shops. So out

of every Rs. 100 spent on PDS, the poor received 12 percent.

In the case of NREGA, 48 percent of the jobs accrue to nobody (compare that with 50 percent of

disappearing food!). Of the jobs actually provided, the poor receive 39 percent. Thus out of

every Rs. 100 spent on NREGA, the poor receive ( 0.52*0.39) or Rs. 20, some Rs. 8 higher than

the PDS. So NREGA quite corrupt but more "efficient" than the PDS? Not so fast. Thirty

percent of NREGA expenditures are capital or non-wage expenditures. Thus the workers receive

only 70 percent of total expenditures, and the poor workers receive Rs. 14 of every Rs. 100

spent in their name. A new identity for the ILE - no matter what scheme you cook up, the poor

get less than 15 percent.

When the 28 ILE's wrote the letter, the Ministry of Rural Development, the Ministry in charge of

delivering NREGA, was quick to respond. In an internal note (but nothing is internal in this web

world) it denounced the perpetrators of the letter as individuals seeking to protect their revenue

stream, never mind the ideology. " In spite of clear evidence of rampant corruption at various

places, the scheme continues to be presented as a successful scheme. This, perhaps, is due to a

solid network of vested interests involving political party functionaries, government officials,

NGOs, research institutes and experts desirous of milking the scheme to their advantage‖. In my

many years of observing policy makers and policy statements, I have yet to come across such a

frank and honest assessment of the tribe I belong to. Congratulations to MRD for nailing it.

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A more public airing of this PDS-NREGA comparison presented itself last week when

NDTV Dialogues anchor Ms. Sonia Singh invited me for a genuine debate on NREGA, more so

since former MRD minister Jairam Ramesh was part of the panel. But 15 min. before the show

was to begin, I was told to go home since Jairam Ramesh, had cancelled his appearance. I

returned home, only to learn later that Mr. Ramesh had miraculously appeared in the TV studios

ready to do the show, with all the pre-scheduled panelists present sans me. The show, and

ideology, and corruption must go on.

Surjit S Bhalla is Chairman of Oxus Investments, an emerging market advisory firm, and a

senior advisor to Zyfin, a leading financial information company. He can be followed on Twitter,

@surjitbhalla.

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No Proof Required

The Unimportance of NREGA

By

Surjit S Bhalla

(Indian Express, July 24, 2013)

Blurb: NREGA accounts for 0.7% of rural employment, and only 8% of the fall in poverty —

growth did all the rest

As the previous column noted (The Great Growth-Dole Tradeoff, Indian Express, July 20, 2013)

poverty reduction in India during the last decade, and especially between 2009/10 and 2011/12,

is a very large success story. Poverty was reduced at an unprecedented rate, at about 5 percentage

points (ppt) a year; the norm for India throughout its long poverty reduction history is a

maximum of 2 ppt a year. So what happened? One explanation is that India had strong growth

during this period, a growth exaggerated by the fact that 2009/10 was a drought year and

2011/12 was a good weather year. But weather alone cannot even come close to explaining the

extraordinary decline in poverty.

There are only two explanations possible – either there was strong growth that reduced poverty

or the government rights programs administered and expanded by the UPA helped in the large

reduction of poverty. To make it simple, the latter will be referred to as Dole. Note also that

while there was strong growth, it could have been the case that, as many (including the

government) argue, this rapid growth was accompanied by an increase in inequality. If this did

happen, then the role of Doles in reducing poverty was even greater than conventionally

assumed.

Household data are available to rigorously test the different roles of growth, inequality, and Dole

in reducing poverty. The NSS employment and unemployment surveys for 2009/10 and 2011/12

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contain detailed information on access and use of the employment guarantee scheme known as

NREGA.

First, the role of inequality in reducing or not reducing poverty between 2009/10 and 2011/12

can easily be addressed. Inequality stayed the same during the two years – a Gini coefficient of

0.357 in 2009/10 and .359 in 2011/12. The share of consumption accruing to the bottom 40 %

was 19.9 % in 2009/10 and 19.6 % in 2011/12. While this is a subject for some later occasion,

the remarkable story about real inequality (consumption adjusted for rural and urban prices) is

that it has stayed the constant since 1983. Indeed, it has marginally improved for the poorest 20

% - consumption share of these poorest was 8.9 percent in 1983 and 9.1 % in both 2009/10 and

2011/12.

So inequality change cannot and does not explain the large poverty decline. It is not an

exaggeration to state that the UPA government strongly believes that NREGA is an important

economic and political tool. It believes that this program has brought rural prosperity, increased

rural wages, and brought the Congress increased votes in 2009/10, and will do so in 2014. The

table below contains various details about operation NREGA for the two years.

How valid are the NSS data for employment by NREGA? The government claims that in 2011-

12, a total of 12.39 crore job cards were issued. According to NSS, there were 70 million

household job cards issued, at an average of 2.2 cards per household yielding a total of 15.4

crore job cards.

The first and most important point to note is that NREGA is a very small program in terms of

rural employment. Work is classified by NSS according to casual work for public works and the

remainder (salaried, farming, permanent employment etc.). And there are two forms of casual

public works programs – those undertaken for NREGA and non-NREGA public works projects.

Some startling facts emerge:

NREGA and wages: Casual work accounts for only 2 percent of all work undertaken in rural

India. And the lion’s share (about two-thirds) is non-NREGA public works. Thus, NREGA itself

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accounts for only 0.65 percent of total rural employment. If this is the case, could NREGA be

causing the large increase in rural wages that have been observed in the last seven years? It is a

question that needs pondering over by all concerned, from the government to independent

institutions like the CAG and RBI. There is no doubt that rural wages have increased at a rapid

rate – but was it NREGA? Could it have been NREGA?

The advocates of NREGA also state that NREGA has helped in raising the average wage level

for unskilled rural labor. If that is the case, then a small tail can wag a very, very, big dog, about

170 times its size (NREGA employment is only 0.6 percent of the rural total). In this regard, it is

noteworthy that NREGA wages rose by 25 percent (just above inflation), while non-NREGA

casual work wages rose by 39 percent!

Only one-fifth of total NREGA work and wages went to poor households, and four-fifths went to

the non-poor. While the poor were poor (around the 14th

to 20th

percentile of rural households),

the non-poor were definitely not the transitory poor as conjectured by authors at the World Bank.

Those desperate to earn a Dole were in the top third of the rural distribution! Did they do back-

breaking work? If they did, I have several UPA scams to sell you. Another indication that these

non-poor were indulging in ―corruption‖ are the data on their annual jewelry purchases– about

Rs. 910 per NREGA non-poor household as opposed to only Rs. 90 for the NREGA poor

household!

Since the NSS data has details on the number of days worked in NREGA, the number of people

working, the wages received from NREGA, and average monthly consumption, one can obtain

the direct contribution of NREGA to poverty reduction. Incidentally, the question of total

NREGA employment was explicit in the 2009-10 survey: ―how many days of NREGA

employment did the household obtain‖. This was inexplicably removed in the 2011-12 survey.

Why? What were the NSS authorities, and the UPA government, afraid of? For purposes of this

article, the number of days worked in NREGA was indirectly obtained.

According to official data, NREGA spend was Rs. 38,000 crores in 2011/12 and expenditure on

wages (that which accrues to the poor) was Rs. 25,000 crores. According to NSS, only about half

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of this number (about Rs. 12,500 crores) accrued to either the poor or the non-poor! And the

poor only got Rs.2,500 crores and the non-poor obtained Rs. 10,500 crores.

The table also reports the net effect of the NREGA Dole. Poverty declined (according to the NSS

employment survey) by 13.1 ppt between 2009/10 and 2011/12; the Dole accounted for only 1

ppt of this decline. That is only 8 percent of the decline. Think about it and conclude fairly – was

this dole really necessary to reduce poverty? Can one think of a worse program for poverty

reduction?

Table 1: NREGA Dole and Effect on Poverty Reduction, 2009/10-2011/12

NSS Data

2009/10 2011/12

Employment

Rural households (in millions)

176.6 181.2

NREGA Job cards issued (official) , in million

123.9

NREGA Job cards issued (NSS) , in million

154.0

Casual work (% of total rural employment)

1.6 2.1

NREGA (% of casual work)

36.4 37.1

Wages

Wage per day - non NREGA casual work (in Rs)

93.6 129.80

Wage per day - NREGA casual work (in Rs)

92.1 114.8

Poverty and related data

Average consumption percentile of poor NREGA receiving

household

14.0 20.0

Average consumption percentile of non- poor NREGA

receiving household

66 65

Annual jewelry purchase (poor NREGA household) (in Rs)

60 90

Annual jewelry purchase (non-poor NREGA household) (in Rs) 490 910

Percent of rural population poor before NREGA dole

40.5 28.3

Percent of rural population poor after NREGA dole 38.3 27.4

Source: NSS Employment and Unemployment surveys

Surjit S Bhalla is Chairman of Oxus Investments, an emerging market advisory firm, and a senior advisor

to Blufin, a leading financial information company. He can be followed on Twitter, @surjitbhalla.

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No Proof Required

A very poor programme

By

Surjit S Bhalla

(Indian Express, Mar. 2, 2012)

Blurb: MGNREGA 2.0 should really be MGNREGA 0.0. It has been outdated from the start, five

years ago

This is the second in a series of articles on the forthcoming Indian budget. It is a fact universally

acknowledged that India is at a fiscal crossroad. She swerved quite significantly to populism

over the last several years, and the consequences of this lurch is that the UPA’s own Finance

Minister is (thankfully) losing sleep over the fiscal burden. More specifically, over the subsidy

burden.

As we all know, the fiscal problem is the net resolution of taxes and expenditures. A country

may be taxing its citizens too little, so revenue needs to be raised. Or it may be profligate and

spending too much, and causing sleepless nights. Both sides need to be examined, and this will

be attempted in several articles in the next few weeks.

The first article ―Corruption by any other name‖ (Indian Express, Feb. 4th

, 2012) outlined the

performance pertaining to one popular, indeed flagship, spending program of UPA, namely its

employment guarantee scheme for the poor, MNREGA. The article documented the fact that

several non-poor in rural India were receiving jobs meant for the very poor. In addition, perhaps

as a coincidence, it was noted that the Congress ruled states like Andhra Pradesh and Rajasthan

were particularly bad in administering resources to the poor.

There have been two sets of (related) criticisms about my findings. The first problem, as

indicated by leading World Bank poverty economist, Martin Ravallion, (Corruption in the

MNREGS? Assessing an Index, Economic and Political Weekly, Feb 25, 2012 ), is that looking

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at non-poor who receive MNREGA wages as an indication of leakage or corruption is inaccurate

because the non-poor may be close to the Tendulkar poverty line and/or may have been ―hit by a

shock that will affect their future incomes‖. In the latter case, the non-poor availing of hard low

wage labor maybe doing so because they are temporarily poor. Ravallion also makes the point

that my corruption leakage index is negatively correlated with the head count ratio of poverty –

obviously, states which have a low poverty rate, like Kerala, will have a higher proportion of

non-poor. Hence, the non-poor in Kerala will receive a higher proportion of wages distributed

via MGNREGA. ―It may entirely possible that the scheme is better targeted in Kerala than

calculations based on the Tendulkar lines‖. Hence, Ravallion concludes, my estimates of the

leakage to the non-poor is really an artifact of the data

Ravallion and the critics will be right if the non-poor receiving benefits were close to the poverty

line. It is nobody’s case that the Tendulkar poverty line is sacrosanct, so people with incomes

some percentage points above the poverty line are poor according to most sensible definitions.

However, to be noted is the contention by supporters of the program that MNREGA is meant

really for the poorest of the poor. Ms. Aruna Roy, member of the National Advisory Council and

a strong advocate of the scheme, spelt out the wish, the intent, and the purpose of the program

almost three years ago: ―NREGA evolved out of a political response to a people’s movement and

the articulated needs of rural workers. It put the people’s right to seek work in a legal framework,

and approached development through the economic and social empowerment of the poor and the

marginalised. The focus was clear: work must be provided on demand. The assets created should

benefit the poorest and most marginalised communities first‖. (Dalits, the Poor and NREGA, The

Hindu, Aug. 27, 2009).

What is clear in the language and intent of the Act is that MNREGA is an income supplement

scheme for the poorest of the poor i.e. those individuals that are in desperate need of incomes

and are willing to do unskilled manual work. MNREGA 2.0 is in the works and upon receiving

recommendations for the same Jairam Ramesh, Minister in charge, stated that the scheme was

meant ―for our self-selecting poorest people‖ (emphasis added).

The table documents the consumption, income and wealth levels of MNREGA beneficiaries in

2009/10. Estimates are based on the NSS 2009/10 survey; this survey had special set of

questions on participation in the program and the results broadly match the numbers published

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by the Ministry of Rural Development. Five facts suggest that far from being for the poorest of

the poor, the MGNREGA program is not even for the poor or the near poor.

Fact 1: Sixty percent of the beneficiaries are non-poor.

Fact 2: The non-poor receive 17 percent more workdays than the poor.

Fact 3: The MNREGA non-poor are in the top third of the consumption distribution of rural

Indians – at the 66th

percentile compared to the 14th

percentile for the poor beneficiaries. The

poor who do participate are right in the middle of the poverty distribution, so at least this aspect

of the program is working well. Presumably, they are also doing whatever work is being done. It

is unlikely that someone belonging to the top third of the distribution is indulging in desperate

back breaking work for low wages.

Fact 4: The expenditure patterns of the poor and non-poor beneficiaries are revealing. The poor

spend Rs. 62 per household per year on jewelry. The non-poor MNREGA beneficiaries spend

close to eight times that amount, or Rs. 487 a year. For the MNREGA non-poor, fully 14 percent

goes towards purchase of jewelry, compared to only 2 percent for the MNREGA poor.

Fact 5: On an all India basis, some Rs. 8830 crores were paid as wages to the MNREGA non-

poor; and some Rs. 1260 crores went towards jewelry purchases.

Poverty expert Mr. Ravallion had made the point that the non-poor were most likely those that

were temporarily poor. It is unlikely that an income emergency leads people to go and buy

jewelry, or that temporary poverty means that your expenditure level is in the top third of all

rural Indians.

Mr. Jairam Ramesh, please note: The facts suggest that something is drastically wrong in

MGNREGA land, a program meant, in your own words, for the poorest. The scheme was

outdated on inception some five years ago. MGNREGA 2.0 should really be MGNREGA 0.0

Much better to implement a cash-transfer scheme for the genuine poor identified through

Aadhar, than to be caught in a puritanical trap that only encourages corruption.

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MNREGA: Poor & Non-Poor, 2009/10

Poor Non-

Poor

Annual Data: per Household

NREGA Workdays 34 40

Wage Income from NREGA, Rs 3116 3556

Expenditure on Jewelry, Rs 62 487

Total Expenditure, Rs 33128 48817

% Expenditure on Jewelry/NREGA Wage

Income 2.1 14.3

Annual data: All India

No. of Households worked in NREGA, mil 17 25.8

NREGA Workdays, mil 577 1020

Rural Expenditure Percentile 14 66

Wage Income from NREGA, Rs Cr 5090 8830

Expenditure on Jewelry, Rs Cr 105 1260

Notes: Estimates computed from household level questionnaire NSS 2009/10

Employment and Unemployment survey

Surjit S Bhalla is Chairman of Oxus Investments, an emerging market advisory firm. He can be

seen weekdays on NDTV Profit, Opening Fire, 8.30-9.30 a.m.

19

More bang for the buck from Non-NREGA work

By

Surjit S Bhalla and Sunil Jain

(Indian Express, Feb. 24, 2011)

Public employment created by non-NREGA public works may just be giving more bang for the

buck than NREGA, around 40 per cent more going by the findings of the NSS survey on

employment in 2007-08. In which case, the finance minister would do well to keep the spending

for NREGA under check.

According to the NSS 2007-08, a total of 477 million mandays of work were created under non-

NREGA public works and a total of 492 million under NREGA public works. This is the first

time the NSS ever made a distinction between NREGA and non-NREGA public works.

In 2007-08, the government spent Rs 10,800 crore on NREGA and created according to the NSS

a total of 492 million persondays of employment. At the average wage of Rs 77.85 reported by

the NSS, that’s a total wage bill of Rs 3,833 crore. Yet, going by the NREGA norm of a 70%

wage component, the government should have given out Rs 7,560 crore as wages. So, the net

effectiveness of the programme was just above 50%.

Looked at another way, the effectiveness was about a third, since the government spent Rs

10,800 crore to deliver Rs 3,833 crore of wages.

Compare this with the non-NREGA public works expenditure. A total of Rs 14,786 crore was

made in 2007-08 for non-NREGA public works. Since wage components are not stipulated for

all of them, we have made some assumptions. The wage component of all projects has been

taken to be 60 per cent, except in the case of rural housing and rural roads where it has been

taken to be 20 per cent. In which case, the wage component of the budget allocation was Rs

4,973 crore. Compare this with the Rs 3,546 crore that the workers should have got, and the

effectiveness is around 71 per cent.

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If you assume that the expenditure has not resulted in any significant asset creation, the

effectiveness of expenditure drops dramatically – Rs 14,786 crore was spent to deliver Rs 3,546

crore of wages, or an effectiveness of 24 per cent.

Interestingly, 56 per cent of the beneficiaries of the non-NREGA public works were poor

(according to the new official Tendulkar poverty line which is some 20-25 percent higher than

the old Indian poverty line) versus 52 per cent in the case of NREGA works.

21

No Proof Required

Does NREGA really work?

By

Surjit S Bhalla

(Business Standard, Mar. 27, 2010)

Blurb: Despite tall claims, the NREGA program is just a dud as most other “in the name of the

poor” expenditures – and as much of a dud as predicted by Rajiv Gandhi.

A decade or so ago, Booker prize winner Ms. Arundhati Roy claimed that the building of dams

in India had displaced more than 50 million people. This implied that one out of every three rural

Indians had had to move because of the construction of dams (remember the population was a lot

lower when most of the dams were built in the 1950s, 1960s and 1970s). Upon closer

examination, it turned out that the number of people displaced was more than a tenth lower, with

the likely estimate around 3 million.

It is poetic and novelist license to indulge in hyperbole; it is quite another matter when official

agencies of the government do the same. And especially in the good governance era of 2010 and

beyond. The latest report of the Ministry of Rural Development, (the one in charge of

implementing the National Rural Employment Guarantee Act , NREGA) makes an Arundhati

Roy like claim: that as of Dec. 2009, 43 million households had been provided with NREGA

employment in 2009/10. The last quarter of the fiscal year is the largest for such employment :

around a third of total NREGA jobs. The projected employment for 2009/10 is likely to be close

to 50 million households. There are about 150 million rural households; this Congress claim is

the same as Ms. Roy: one out of every 3 households in rural areas will have worked on NREGA!

Even more remarkable – the jobs are meant to be hard work, menial, at minimum wages and for

the poor. In 2004/5, official estimates place rural poverty in India between 20 to 25 percent.

Assuming no improvement in poverty at all – an extraordinary accomplishment for a government

that prides itself on inclusive growth – 22.5 percent poor households mean 34 million. So the

government is claiming that every poor household is covered, and for good measure, 50 percent

more are provided employment.

22

This superlative achievement is credited by many – both within the Congress and the Opposition

– for Congress’s surprise win in the 2009 elections. Some of us had predicted such a win, but

without recourse to this super weapon of opposition destruction. It was because we had not

looked at the government data. In 2006/7, the first full year of implementation, the government

claimed to have provided employment to 21 million households. In the space of just three years,

the government is claiming to have increased jobs for the poor to 50 million. No wonder the

Congress won, and won so emphatically. The poor just love the Congress, because it has stood

tall for them.

But has it? It was not so long ago that Rajiv Gandhi had stated that he had found well meaning

programs meant for the poor but not reaching the poor. Without much scientific basis, he came

out with the assertion that only 15 percent of the expenditures meant for the poor actually

reached the poor. Experts who have tried to test this assertion have found more truth in that

statement than almost any other forecast of an economist, defunct or otherwise.

There is a way to test the veracity of Rajiv Gandhi’s prediction, and the Congress governments’

claim on reaching the poor. In 2006/7, in the 63rd

round of the all India NSS survey, a special

question was asked of those above the age of 15: did you work in a public works program during

the last 365 days, what wage did you get and how many days did you work. These answers are

reported in the Table along with the statistics from the Ministry of Rural Development. The latter

are for the period April 2006 to March 2007; the NSS figures are for the period July 2006 to June

2007. To the extent the rapid expansion of NREGA is true, the NSS figures are an over-estimate

of the ―true‖ financial year figures.

The first figure of note is the fact that NREGA was not able to spend all the money allocated for

it; indeed, it spent less than three-fourths of what was allocated. Of course, those were early days

of the program, but even in 2008/9, when allocations reached Rs. 30,000 crores, the NREGA

authorities were able to spend only 73 percent. The Ministry claims only Rs. 8823 crores were

spent in 2006/7, and two-thirds of this amount (Rs. 5842 crores) was spent on wages. The rest

are administrative costs, capital equipment, etc. i.e. Rs. 3250 crores were spent to facilitate

expenditures. But was this money ostensibly spent as wages – Rs. 5842 crores –received as

wages by NREGA workers? According to the NSS, only half of the expenditures allocated as

wages was received as wages – Rs. 3000 cores received vs. Rs. 5842 crores meant to have been

23

received. Even less went to the target poor worker. The NSS reports that NREGA wages

received by the poor were only Rs. 1270 crores.

Let us ponder on this figure for a little while. The government announces with much fanfare that

it is spending a lot to fight hunger, poverty, injustice and inequality. Despite repeated evidence

for the last twenty years that ―in the name of the poor programs‖, and especially in the name of

the poor programs, reach everybody but the poor, the well-meaning socialist but not so realist

Congress renamed and expanded existing food for work programs under its own Congress brand

as NREGA, and now MREGA. (Ironically, but poetic justice style, the latter acronym also means

―to die‖!). It spends Rs. 8823 crores on the program in 2006/7 (and Rs. 39000 crores in 2009/10)

and is able to actually deliver only 14.7 percent (Rs. 1270 crores) to the targeted audience?! The

figures suggest that Rajiv Gandhi, the enlightened pragmatic realist, was extraordinarily right.

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Table 1: Testing NREGA Achievements - 2006-07

Ministry of Rural

NSSO

Development

(MRD)

Actuals

Index

Actuals

as % of as % of

(** =

100) MRD* MRD**

1. NREGA Financial Data (in Rs. Cr.)

Total funds available 12073 137

Funds Utilized (MRD - **) 8823 100

Funds Utilized as Wages (*) 5842 66

3000 51 34

-- Wages on Poor

1270

Rajiv Gandhi Index

(% of funds reaching the poor)

21 14

Average Wage, per day per person (In Rs.)

90.00

Average Wage per day per household (In Rs.) 65

65

2. NREGA Physical Data

No. of households (in Cr.) 2.1

1.7

No. of workers (in Cr.) 2.4

Person days (in Cr.) 90.5

46.5

Person days per household 43

27.2

Person days per worker

17.5

Note

1) Poor Identified in NSSO 63rd

round, 20006-07, according to monthly per capita expenditures being below the

official 2004-05 poverty line for different states and extrapolated for 2006-07 according to the rise in the CPIAL index.

The author is Chairman of Oxus Investments, an emerging market advisory and fund management firm.

Please visit www.oxusinvestments.com for an archive of articles et; comments welcome at

surjit.bhalla@oxusinvestments.com

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