Improving MNREGA

Yash Daga

As seen in the 2009 elections, the UPA’s MNREGA program has earned the Government significant popular appeal. The program is also credited for securing the livelihood of several unemployed Indians, particularly in rural India. However, while the program has a very noble purpose, it is arguably ridden with several serious flaws, which have reduced social welfare instead of enhancing it.

From the issuance of the MNREGA cards, to the remittance of due payments- the implementation of the program is ridden with corruption and misuse. Moreover, MNREGA works are intentionally labour intensive, even when more efficient and cheap mechanised ways are available for the same job. So for instance, if a road costs ‘x’ to build, we spend ‘2x’ to get it built.

The main problem with the program is that it creates a disincentive for people to work. A labourer within MNREGA has little incentive to work harder, faster and more efficiently , because his supervisors are not judged by any performance metrics other than “number of people employed”.  These labourers therefore work slower than they would in a farm or factory making it detrimental to the society. If a labourer in MNREGA is offered a job at a local factory, his opportunity cost for taking that job is now the wage he gets at MNREGA, plus the cost of extra work that he will do at the factory.

This is artificially raising the input cost of farming and manufacturing and is also creating labour shortages in several farms and factories – in some cases labourers are simply refusing alternative work. In these cases, MNREGA is not just giving welfare to the unemployed, but is actually driving employed labour to move away from the industry and into the program. The country then ends up paying more than it should towards this welfare program.

These problems, as listed above, can be cured with a simple modification to the MNREGA program, to create the program into a Public Private Partnership. Private employers across sectors should be allowed to draw labour from the MNREGA pool. This would somewhat work in the following manner:

  1. If a farmer is hypothetically interested in hiring MNREGA labour – he may apply to the local administrator and file an application for say 25 people.
  2. A verification process is created to ensure that the workers are given a safe work environment, are treated fairly etc.
  3. The farmer in turn, commits to giving employment to these labourers for 100 or more days per year, and maybe even puts down a deposit for a part of the wages in an escrow.
  4. MNREGA allots 25 people to the said farmer and maintains checks to ensure that the terms mentioned in point 2 (above) are met.
  5. The minimum wage set by MNREGA still applies. In the case of excess demand for workers, the labourers are allotted to the employer that offers the highest wages.
  6. In case the demand from private employers is less than the supply, MNREGA allots the work to the labourers as per current practices.
  7. MNREGA charges an administration fee to cover related expenses from the employer.

Involvement of the private sector in this manner benefits the government, economy and society . It ensures that the MNREGA covers only those individuals who are genuinely unemployed and not those that have other opportunities for employment. This reduces the burden of welfare on the government drastically and keeps general productivity of labourers high. There is no incentive to leave productive workforce to join MNREGA. Furthermore, in some cases, this also provides a high degree of skill development for the workers, which MNREGA related jobs may not do. In turn, no employer suffers a workforce shortage on account of MNREGA, and the livelihood of all citizens is ensured.

Finally, it is important to note that MNREGA is not a program that can be easily suspended for strong political reasons. Such tweaks however, can bring about the desired outcomes without negative political ramifications. It may be the best solution for all stakeholders involved.

Yash Daga is a graduate of New York University’s, Stern School of Business, and is the Executive Director of RBBR Infrastructure Pvt Ltd.

, , , ,

2 Responses to Improving MNREGA

  1. Deepti April 15, 2013 at 11:29 am #

    My work in rural Andhra Pradesh has shown me that the implementation of NREGS there does not seem to suffer from some of the flaws you have mentioned. For instance, metrics are employed to determine the amount of wages to be paid (volume of mud excavated, for instance). Money transfer happens directly from the exchequer to the postal accounts of the individuals. Incidentally, this has led to greater economic independence of women since their wages go directly to their account and they can withdraw money whenever they need.
    I am curious to hear more about your PPP suggestion – who do you envision paying the workers’ wages? Currently NREGS money is a combination of central and state funding, so the wages come from central and state governments. If, hypothetically, a PPP model were to be adopted, would the farmer who hires 25 labourers be required to pay their wages?

  2. Vishal Thakkar April 22, 2013 at 5:40 am #

    So true. MNREGA is artificially created shortage of labour, high disincentive for regular industrial job as MNREGA job is easy and created inefficiencies as there you rightly mentioned metrics for evaluation is not quality and quantity of work done but labour employed. I completely agree with your suggestions for PPP in this scheme. Also one can look at wages liked to productivity and not ad hoc base wages level that are prescribed under current scheme.

Leave a Reply