TN, AP switch to leaky cash payouts for NREGS by Sandip Das

Tamil Nadu has stopped using banks to pay workers employed under the National Rural Employment Guarantee Scheme (NREGS), turning the clock back on the programme that was expected to eliminate layers of middlemen in reaching money to the poor. Rural development ministry officials at the Centre confirmed the development, but termed it “a temporary setback”. However, Tamil Nadu is not alone. Andhra Pradesh too has asked some of its poorest districts to revert to cash payments instead of routing wages to savings accounts.

As per NREGS rules, workers must be paid within 15 days of completing a work programme. Tamil Nadu and Andhra Pradesh — which have used the job scheme extensively in rural areas — have found lack of banking facilities and poor telecom networks delaying payments.

Said BK Sinha, secretary, ministry of rural development: “Key stakeholders like the Reserve Bank of India, banks and post offices are revamping and expanding their networks to pay wages through savings bank accounts.” He said once these systems are in place, cash payment of wages, which are highly prone to leakages, will disappear. However, he could not say by when the financial system would be able to get its house in order, since it is the domain of the finance ministry. Meanwhile, the example of a leading state like Tamil Nadu could be a serious dampener for the rural development ministry in expanding and streamlining the presence of NREGS across India.

“Due to lack of connectivity and reluctance of some states in following the rules, we are still paying wages in cash in many parts of the country,” Jairam Ramesh, rural development minister, told FE, without naming states.

For remote and hilly areas lacking bank networks, the government has proposed business correspondents and smart card-based solutions for payments.

For quick wage disbursals and better transparency, the NREGA legislation was amended in February 2009 to allow payments through banks and post office accounts. According to the rural development ministry, 83,000 rural public sector bank branches and 1.5 lakh rural post offices currently operate over 10 crore NREGS-linked accounts.

According to a rural development ministry official, over 84% of all wage payments under NREGS is made through banks and post offices. He could not say by how much that percentage would dip after Tamil Nadu and Andhra Pradesh exit the model.

The ministry had pegged Rs 80 per account per year as fee to be paid to banks for running the business correspondent model. These charges had to be incurred from the 6% administrative expenses admissible under NREGA.

For this fiscal, the government has allocated Rs 40,100 crore for implementing NREGS. However, thanks to legal backing, the NREGS allocation does not lapse like allocations for other social schemes. Close to four crore families are engaged in NREGS which guarantees 100 days of manual work for each rural household.