MNREGA must be reformed, not scrapped.

The government wants to limit MNREGA to the 200 most backward districts; Bhagwati and Panagariya suggest that, perhaps, such schemes are best scrapped. The more sensible view, which Mihir Shah puts forward, is that MNREGA needs to be reformed and made more effective.

Bhagwati and Panagariya bring up the familiar argument about leakages and corruption in government schemes. They suggest that Rs 50 reaches the worker in wages out of an estimated Rs 250 of expenditure incurred by the government. Are we not better off, they say, in simply giving Rs 50 to the poor by way of cash transfers?

There are several flaws in this argument. Let me mention two. The first is their contention that, in opting for work under MNREGA, the worker forgoes alternative income. The economists assume this income forgone is Rs 80. They assume MNREGA wages to be Rs 130 (not always the case). Hence, a net transfer of Rs 50. Now, this is simply not true. The data suggests that most MNREGA employment is of the off-season variety, that is, people queue up for MNREGA work only when they do not have other avenues of work and income.

The other flaw in the argument is that the amount spent (which the authors estimate at Rs 250 after factoring in leakages of 25%) is current expenditure because no assets are created anywhere. This, again, is not true. The experience varies across states. In some places, empirical research shows assets of good quality have been created.

The answer, therefore, is not scrapping MNREGA and replacing it with cash transfer. It is making it more efficient- that is, reducing leakages and ensuring that asset creation happens everywhere and not just in select areas. How do we do this? One starting point surely is studying the success stories and the factors that make for success. Mihir Shah writes:

The best way to do so is to study where the programme has been able to deliver. I have in mind the thousands of villages where water harvesting structures have been created, agriculture has improved, nearly 100 days of work has been provided, distress migration has reduced and women have been empowered. MGNREGA is one programme where all this has been rigorously documented by scholars from all over the world. This research also throws up insights on the features that characterise locations where success has become possible: one, availability of strong technical support to the main implementing agency, the gram panchayat; two, capacities to undertake decentralised planning exercises and creation of a robust shelf of works; three, awareness among MGNREGA work-seekers of their entitlements and procedures under the programme; four, active and vibrant gram sabhas, which debate and decide the works to be undertaken and all procedures related to the programme; five, open and effective social audits that check corruption; six, accountable gram panchayats, where the leadership responds to the legitimate demands and grievances of the people; and seven, a system that ensures timely payment of wages.

Shah supports the NDA government's plan to focus on 2500 most backward sub-districts but warns that this should not be mean denying work to those seeking employment elsewhere. That, he points out, undermines the basic principle of MNREGA which is to guarantee work to all.

And, of course, we need flexibility - in respect of what schemes to finance and also the ratio of 60:40 for wages to materials. Perhaps, the ratio need not apply to every single scheme but may be applied at a district or block level. Perhaps in some areas, a different ratio needs to be worked, depending on whether more materials are needed or more labour is needed.

Replacing MNREGA with cash transfers is quite the wrong way to go. First, there remains the problem of identifying the needy (whereas MNREGA's great strength is self-selection by those in need). Then, we need to wait for bank accounts to spread and be seeded with Aadhar, a process that will take time and that must be tested before we start using it.

Moreover, cash transfers will perpetuate precisely what the Modi government is against, namely, a dole culture. Even the poor like gainful work, the respect that goes with it and the satisfaction of having created something worthwhile. Bhagwati and Pangariya forget that MNREGA was passed by parliament and has the support of all political parties. If they thought that Modi was pro-market and would be impressed by their proposal, they may well be proved to have been sorely mistaken.