Working things out

Hindustan Times
Updated: Feb 21, 2013 15:23 IST

Few other government initiatives have had the sort of potential for rural transformation that Mahatma Gandhi National Rural Employment Guarantee Act (MNREGA) does. From ensuring that people do not sleep hungry and reducing exploitation of labour, to creating rural assets, being a source of economic independence for women, revitalising panchayati raj institutions, the promise of this programme remains important today. The pity has been that while MNREGA is a rich area of research, few studies have tried to give a balanced view of its successes and failures in different states.

One aspect of MNREGA that is not studied too often is financial inclusion. MNREGA has already contributed to perhaps the largest financial inclusion drive in rural India in recent times. In 2008, the government made it compulsory for MNREGA wages to be disbursed through bank or post office accounts. The Reserve Bank of India allowed ‘zero balance’ or ‘no frills’ accounts to be opened for all MNREGA job card holders. Today, close to 40% of all rural households have a job card and nearly 90% of MNREGA job card holders have a bank or post office account. More than half (56%) are bank accounts. In many cases, accounts have been opened in the names of women. Under MNREGA, all adults are eligible for work, so each job card can have more than one registered worker. As a proportion of registered MNREGA workers, just about 40% have an account. Predictably some states have done better than others. Workers with individual MNREGA bank accounts are highest in Kerala (73%), followed by Andhra Pradesh (61%), Tamil Nadu (49%) and Himachal Pradesh (39%). The all India average is 25%.

Besides spurring financial inclusion, the payment of wages through accounts also had an impact on wage corruption. When wages were paid in cash, the implementing agency was the same as the payment agency: it was easy to inflate attendance, claim wages from authorities, pocket the inflated amount and pay the labourer his/her fair share. When wages are paid through accounts, the inflated amount (if any) is deposited into the labourers’ account, so that the only way corrupt officials can get a share is through extortion (money is taken forcibly from labourers after they withdraw it) or collusion (MNREGA official collude with labourers or post office functionaries to defraud the system). While extortion and collusion do occur, wage corruption has become more difficult.

Overall wage corruption can be estimated by matching the days of work as reported in official sources with independent estimates of employment collected directly from labourers. The rural development ministry’s website (www.nrega.nic.in) reports the official employment figures and the National Sample Survey Organisation (NSS) collected information on MNREGA employment in 2007-8 and 2009-10.

The MNREGA Monthly Progress Report (MPR) gives the days of work for each household that reported getting work. The average for July 2009 to June 2010 was 54 days of work on an average; the corresponding average from the NSS is 37 days, ie, a maximum leakage rate of 31% at the all-India level. However, it was felt that some states were using the MPR to inflate the scale of employment provided, so a switch to the Management Information System (MIS) was initiated in 2009-10. The MPR gives the upper limit on MNREGA employment claimed to have been provided. A similar exercise in 2007-08 found a leakage rate of 44%. (In 2007-08, MPR was used for tracking programme implementation). This rough estimate of corruption suggests that wage corruption went down from 44% to 31% (at most) in just two years.

Financial inclusion, however, came at a price: initially, it led to substantial disruption as workers without accounts were denied work. Further, reduced potential for wage corruption contributed to delays in wage payments. Earlier, whenever a labour payment was sanctioned, MNREGA functionaries also got a share. This is no longer possible, so foot-dragging over payments has become more rampant. Tamil Nadu was the only exception — in spite of the central directive on payments, they stood firm and continued with cash payments, because they feared that the transition would be too disruptive. They found other ways of dealing with wage corruption — collective and public cash payments, monitoring attendance through SMS reports combined with random field checks, implementation through gram panchayats and so on. In 2007-08, estimates for Tamil Nadu suggest that there was almost no wage corruption.

A similar threat of disruption of MNREGA looms large today with rumours that Aadhaar, despite enrollment rates being very low still, will become compulsory for MNREGA workers. Instead, the government should continue to focus on the good work that began in 2008, ie, expanding the reach of the formal banking system to rural areas, and work towards bringing greater transparency in the implementation of the programme.

( Reetika Khera teaches economics at IIT Delhi and is currently on a fellowship at the Institute of Economic Growth.)

( The views expressed by the author are personal. )