Tweaking rural jobs scheme

The Rural Development Minister, Mr Jairam Ramesh’s proposal to amend the law on minimum wages to permit a lower wage for employment under the rural jobs scheme (Mahatma Gandhi National Rural Employment Guarantee Act or MGNREGA) makes practical sense. The Karnataka High Court ruled recently that wages set under MGNREGA cannot be independent of the MWA. Effectively, it means there can be no such thing as an MGNREGA wage; for works under the scheme, it is the minimum wages fixed by state governments under a general law that would prevail. These wages, are currently higher than what is paid under MGNREGA in six States: Andhra Pradesh, Rajasthan, Karnataka, Kerala, Goa and Mizoram. What Mr Ramesh is seeking is a new MGNREGA category within the MWA itself – so as to avoid any overriding force of the latter legislation – and the authority to the Centre to decide wages in this case.

But apart from addressing legal anomalies pertaining to a distinct MGNREGA wage, the time has come to review the scheme itself, including the basic design and implementation aspects. Official statistics show rural wages to have more than doubled between 2004-05 and 2010-11. Farmers claim that the increases are much higher and it is difficult to get labour even at these rates. How much of this is attributable to MGNREGA and whether it is growth in general that is really responsible are moot points. What is undeniable, though, is the fact of the scheme altering the labour market psychologically. To that extent, the scheme may have met one of its key goals of empowering the landless rural poor – never mind the annual outlay of over Rs 40,000 crore, with very little of this money evidently going towards creation of productivity-enhancing assets.

The challenge now is to make the MGNREGA into what it should ideally be: An unemployment insurance programme in rural areas. Such a programme, by its very definition, would not substitute for normal employment. Unfortunately, that is what it is doing today, by diverting labour away from farms during the busy agricultural season and often for work of much less intensity. Unemployment insurance should be triggered only in the off-season, where the state commits itself to making payments to those unable to find work. In that sense, it would be a classical countercyclical fiscal measure that aims at ensuring a minimum level of income for rural households so as to reduce distress migration. Anecdotal evidence suggests that this is happening in a a few States endowed with an enlightened local administration. Whether these payments are made in lieu of work or as a simple income transfer is irrelevant. What counts is that the scheme is operational only in the lean months (as any countercyclical measure should) and MGNREGA work is treated separately from normal employment. That would enable its ultimate evolution into a genuine, non-market distorting welfare scheme.