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MGNREGA reduces poverty and empowers women but work rationing limits its impact

Those are the main findings of Mahatma Gandhi National Rural Employment Guarantee Act: A Catalyst for Rural Transformation just released by researchers from the National Council of Applied Economic Research and the University of Maryland. The Mahatma Gandhi National Rural Employment Guarantee Act has been remarkably successful in improving the welfare of workers who participate in the programme. But its reach has been limited due to the lack of work in some of the poorest areas.

At least 25% of the decline in  poverty since 2004-5 for participating households can be attributed to participation in MGNREGA. These households are also less likely to have to rely on moneylenders for loans and more likely to have children with higher levels of education.

As principal author of the study Professor Sonalde Desai Senior Fellow at NCAER and Professor of Sociology at University of Maryland notes “The most striking impact of MGNREGA participation is on women. Increasingly women dominate MGNREGA work. And for more than 40% of them MGNREGA is their first opportunity to earn independent cash income. Not surprisingly this increases their power within the household and improves their conditions including access to health care.”

However the positive effect of MGNREGA is limited by very low access to work in some of the poorest states such as Bihar and Odisha. Only 24.4% of rural households participate in MGNREGA nationwide and nearly 70% of the interested households cannot participate due to lack of work. Most important about 70% of households below the poverty line do not participate. Implementation challenges lie at both the state and the local level.

In states with strong programmes such as Chhattisghar nearly 60% of the poor participate in MGNREGA infrastructure projects. By contrast in states with weak programmes such as Bihar barely 11% of poor households participate. It is particularly important to ensure better implementation at the local level—both to improve MGNREGA access and to improve the quality of infrastructure.

As Dinesh Tiwari Associate Fellow at NCAER found during his fieldwork in Rajasthan and Madhya Pradesh local processes often delay project approvals reduce access to work and abandon projects before completion.

This report is unique in that it relies on detailed interviews with over 28000 households spread across rural India. They were interviewed in 2004–05 before the initiation of MGNREGA and again in 2011–12 after the programme was implemented. As Dr. Shekhar Shah Director-General NCAER noted “As India continues its march towards economic prosperity independent rigorous assessments of this type will be increasingly required to ensure that public policy and programmes stay on the right track.”

MGNREGA Empowers Women

Around the world women are paid less than men. In India in 2004–05 rural women earned only 53 paise for each rupee earned by men. But with the implementation of the Mahatma Gandhi National Rural Employment Guarantee Act in 2006 suddenly there was at least one job where men and women were paid equally. Is it any surprise that women’s participation in MGNREGA has risen sharply and today women’s share of MGNREGA work is nearly 53%?

As a new report by researchers from National Council of Applied Economic Research and University of Maryland Mahatma Gandhi National Rural Employment Guarantee Act: A Catalyst for Rural Transformation points out this has led to tremendous change in the lives of women participants. Since men and women earn the same amount for MGNREGA work but men earn far more in market-based work households often reserve their MGNREGA work allocations for women thereby increasing total household income.

The report is based on interviews with about 20000 women ages 15–49 in rural areas conducted in 2004–05 and then again in 2011–12. Omkar Joshi one of the authors notes that “about 45% of the MGNREGA women workers either were not employed seven years earlier or worked only on family farms.” Thus for many women MGNREGA is the first opportunity to earn independent cash income. This has led to broad changes in women’s lives.

MGNREGA requires a bank account for payment so in households where women participate in MGNREGA women’s access to a bank account increased by 38 percentage points—compared with 13 percentage points for their neighbours in the same village who do not participate. Their access to cash for household expenses has also increased. Whereas women from participating households initially had lower access to cash than their neighbours who did not participate by 2011–12 they had overtaken these neighbours and nearly 93% reported having some cash in hand. Their say in household decision making also improved as did their ability to get access to health care for themselves.

As Sonalde Desai Senior Fellow at NCAER and Professor of Sociology at the University of Maryland and one of the authors notes “Gender inequality in India has often made headlines. We rarely see stories about structural changes that are not strictly directed towards changing gender balance in Indian society but nonetheless empower women. MGNREGA’s positive contributions towards women’s empowerment deserve greater attention.”

Unmet Demand Limits the Impact of MGNEGA

“Workfare or welfare?” is the crucial question many countries are asking. While many developed countries seem to choose income support for the poor via welfare programmes developing countries like Mexico Chile and Rwanda are moving towards workfare programmes. Mahatma Gandhi National Rural Employment Guarantee Act is the largest such programme in the world. As a report evaluating the impact of MGNREGA released by the National Council of Applied Economic Research and the University of Maryland notes while economic growth has lifted many households out of poverty poverty reduction would have been at least 25% lower without MGNREGA.

MGNREGA is a self-targeting programme that assumes anyone who has access to other better-paying work will not participate. Results seem to bear this out: 30% of the poor participate compared to 20% of the non-poor. But the popularity of MGNREGA among the rural electorate lies in the fact that participation is spread throughout the income distribution with only the richest fifth and the college educated opting out of the programme. Unlike many other government programmes MGNREGA is far more likely to employ dalits and adivasis at the same income level as those from forward castes. Thus in one sense the programme is doing exactly what we expect it to do—provide backup employment to those whose options are limited.

But in spite of this success the impact of MGNREGA on household income is limited. Almost 70% of the poor do not participate in MGNREGA mostly because work is not available according to a survey of 28000 households of which only 24.4% partcipated in MGNREGA. As Prem Vashistha one of the authors of this report and Visiting Senior Fellow at NCAER notes “Work rationing seems to be pervasive with about 40% of rural households working less than the 100 days they are eligible for in spite of their desire to work.” When asked about the reason for not completing their full entitlement nearly 70% of those with unmet demand said that work was not available.

Since the Act mandates that work should be available whenever households ask for it how do we explain this unmet demand? As Sonalde Desai Senior Fellow at NCAER and Professor of Sociology at University of Maryland notes “Systemic breakdown takes places at local block and state levels.” Differential progress of states towards implementing MGNREGA is well recognised. There is little correlation between poverty levels of a state and its level of MGNREGA participation. Greater proportions of households in richer states like Tamil Nadu participate in MGNREGA than in poorer states like Bihar.

It is well recognised that lack of political commitment in within states plays an important role. But local political conditions have received less attention. The Gram Panchayat must ensure that demand for work is recorded in regular Gram Sabha meetings formulate a work plan and obtain funds from the block administration. Apathy as well as lack of experience at the local level leads to bottlenecks poor management and lack of work. These local effects persist in all states so that one village may have many ongoing projects while another nearby may have very few projects. Building capacity among local institutions is essential if this unmet demand for MGNREGA work is to be satisfied.

Business sentiment fell sharply in the first quarter of the current fiscal as smaller companies are experiencing the worst deterioration in business sentiments says a NCAER survey.

“The 93rd round of Business Expectations Survey (BES) carried out in June 2015 reveals that business sentiments have not only continued to decline but are declining at a more rapid pace.

“The Business Confidence Index (BCI) decreased by 11.9 per cent over the previous quarter on a quarter-on quarter basis and by 15.1 per cent on a year-on-year basis” said the survey by economic think-tank National Council of Applied Economic Research (NCAER).

All components of BCI showed negative change between April and July 2015 it added.

Commenting on the survey NCAER fellow Bornali Bhandari said “The decline of business sentiments specially related to the investment climate is particularly worrisome because this may be perceived as a signal for lower future investment and thereby for economic growth.”

“Further the fact that smaller companies are experiencing the worst deterioration in business sentiments is a matter of concern both for growth and equity” he added.

As per the survey the services sector showed a marginal improvement in the BCI (2.6 per cent).

The manufacturing sector showed double digit decline in all four sectors – consumer durables non-durables intermediates and capital goods.

The fall in BCI for consumer durables was the steepest.

The survey further said the Political Confidence Index (PCI) continued its slide downwards from last quarter.

“The PCI fell by as much as 17.7 per cent over the last quarter on a q-o-q basis and 16.2 per cent on a y-o-y basis.  All components of PCI show a deteriorating trend” it said.

NCAER has been conducting Business Expectations Survey (BES) every quarter since 1991.

It tracks the business sentiments of over 500 Indian companies to compute the composite index—Business Confidence Index.

This column published in the Financial Express is written by Prof M. Govinda Rao Non-resident Senior Fellow NCAER.

Media reports about the boycott of the nine Congress chief ministers and the non-attendance of those non-UPA non-NDA ones-of Odisha Tamil Nadu Uttar Pradesh and West Bengal—in the recently held meeting of the NITI Aayog to discuss the issue of land acquisition does not come as a surprise. On the contentious issue of land acquisition on which the main opposition party has taken a contrarian view the Congress chief ministers are expected to play hard-ball. However the issue’s scope goes beyond just that. It has to do with the trust and credibility of the institution and what it can offer to the states on a sustained basis. The Planning Commission was tolerated by the states because it had the purse and could patronise the states by luring them with promises of grants. They even got their annual plans approved by the Planning Commission although it made little sense for the Union government to approve the plans of the states when the Constitution demarcates the responsibilities in terms of Union state and concurrent subjects. Indeed coordination in overlapping policies and their calibration is important and it is doubtful to what extent the Planning Commission succeeded in this task. In any case NITI Aayog does not have the patronage purse and although it is vested with the responsibility of policy coordination and promoting cooperative federalism and the chief ministers are on its Governing Council it is viewed essentially as a Union government institution. This underlines the basic shortcoming in the present institutional architecture of NITI Aayog and it is important to make corrections if the Aayog has to play an important role in promoting inter-governmental bargains resolving issues and coordinating policies between the Union and states in the spirit of co-operative federalism.

The absence of a credible institution for inter-governmental bargaining and conflict resolution on the one hand and coordinating the policies of the Union and states on the other—one that can accelerate economic growth and promote sustainable developmental agenda—has long been felt in Indian federalism. The patriotic euphoria after Independence the credibility and trust in the leaders who were in the forefront of the Independence movement and the single party rule in both Union and states culminated in—besides centralisation of policy making—an informal mechanism to deal with functional overlaps and inter-governmental disagreements. Thus formal systems of inter-governmental coordination and conflict resolution were not found necessary and as centralised planning gained currency the Planning Commission was called upon to perform the function of coordinating plans. Over time with the different parties (sometimes regional ones) ruling the Union and state governments and with the emergence of coalition governments at both Union and state levels the informal system of conflict resolution could no longer succeed underlining the need for formal institutional mechanism. The Sarkaria Commission on Centre-State Relations recommenced the establishment of the Inter-State Council but the institution failed to take off as its location in the Union home ministry robbed it of the sense of non-partisanship and autonomy and the failure to assign the due importance to the institution undermined its significance. The National Development Council (NDC) created to coordinate development plans became mainly a body where the state chief ministers delivered prepared speeches. In the last 10 years there were only two meetings of the NDC. Even the regional councils like the North Eastern Council which were created to collectively represent the common interests in their dealings with the Union government have failed in this task.

The Cabinet Resolution establishing the NITI Aayog states that the Aayog would promote “…co-operative federalism through structured support initiatives and mechanisms with the states on a continuous basis”. There are a number of areas requiring coordination due to considerable overlap in carrying out legislative and executive functions in concurrent subjects. The recent years have shown the need for co-operation in areas such as energy and environment education and poverty alleviation where the need for coordinated action and speedy decisions are critical for pursuing the developmental agenda. Further the Union government may have to intervene in the national interest even if these areas are in the state or in the concurrent list. The subject of land is in the concurrent List and given the contrarian stands taken by the ruling and opposition parties the government perhaps thought that NITI Aayog is the right forum to discuss the issue before it is debated in Parliament. Perhaps it was thought that assigning the responsibility to the states like in the case of labour laws is a strategic move as the forces of inter-state competition might create a “favourable” climate for land acquisition. However it remains to be seen how the policy will shape. The issue complicated as it involves a variety of interests representing land holders and industrialists.

The most important issue which the NITI Aayog will have to deal with is the rationalisation of centrally-sponsored schemes. The committee appointed by the Aayog with the chief minister of Madhya Pradesh as its chairman is reported to be finalising the report and consolidating the number of schemes to about 30. This comes in the wake of the Union government reclassifying the schemes in the Union Budget after the 14th Finance Commission increased the states’ share of taxes in the divisible pool to 42% as compared to 32% by the previous commission. The problem with this arrangement is that the states’ committee is likely to recommend the continuation of the same level of assistance if not higher. This will catch the Union government in a bind because acceptance of the recommendation will erode its own fiscal space and not accepting it will undermine credibility of the process. Perhaps the Union government should have thought more seriously about implementing the recommendation of the Finance Commission which recommended that the schemes should be designed and implemented with representations by the Union states and domain experts in the spirit of cooperative federalism.

In order for the NITI Aayog to play an effective role in inter-governmental coordination and conflict resolution the states will have to see it as a non-partisan institution facilitating the process by working with both Union and state governments objectively. This requires appropriate structure status and trust. It is important that the Aayog is given statutory status and powers if it has to function effectively. Unlike the Planning Commission the NITI Aayog does not have the powers to give grants and if that is given then it will only perpetuate the patronage system. It can play the role of impartial arbiter and adviser only when it is given the statutory powers and status and the inter-state council is placed within the Aayog. In the absence of this it would be difficult to see the Aayog effectively playing the role assigned to it and the states developing confidence and trust in it.