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Insights into Editorial: Don’t Dismantle MGNREGA, Reform it + Mindmaps

Insights into Editorial: Don’t Dismantle MGNREGA, Reform it + Mindmaps

The Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) aims at enhancing the livelihood security of people in rural areas by guaranteeing hundred days of wage-employment in a financial year to a rural household whose adult members volunteer to do unskilled manual work. It guarantees the ‘right to work’ and ensures livelihood security in rural areas. But, critics have always seen MGNREGA as a programme that distorts labour markets and argue that it does far more harm than good.

However, a recent study conducted by a group of experts has proved critics wrong and has made the following observations:

Operating mechanism of MGNREGA:

  • The MGNREGA is a self-targeting programme that assumes that those who can’t find better-paying work will participate in the hard manual labour offered under the act. However, the study shows that the programme is moderately effective in this. 30% of poor and 21% of non-poor households participate; and 30% of illiterate households versus 13% of households with college graduates participate.
  • The programme also offers work to a variety of middle-income rural households, such as moderately prosperous farmers who can’t find work during non-harvest periods.

Does it really reduce poverty?

  • The study shows that among the 24.4% of MGNREGA-participating households, the median number of days worked is 40 and the median annual income forms about 8.6% of total household income. This is small but significant for them.
  • Estimates based on a variety of assumptions suggest that without the MGNREGA, the poverty ratio would be at least 25% higher among participants.

Does it distort labour markets?

  • The biggest complaint against the MGNREGA is from large farmers, who claim it has provided alternative jobs to agricultural labourers and increased agricultural wages.
  • Few data show that agricultural labour wages have risen faster than other wages, but it is not clear that this increase can be totally attributed to the MGNREGA.
  • The small and marginal farmers who own the bulk of India’s farms are both MGNREGA workers and employers of farm labour. Thus, their MGNREGA income, more than, makes up for any hardships caused by an increase in agricultural wages.
  • However, it is also true that medium to larger farmers — less than 10% of cultivators — are affected by increases in agricultural wages. But, the recent MGNREGA emphasis towards improving agricultural infrastructure and irrigation should compensate for this hardship.

Performance of the scheme:

  • Data show that only 30% of poor households participate in MGNREGA. Many households have even complained of not having sufficient work due to poor implementation.
  • Some of the poorest states, such as Bihar and Odisha, have particularly low participation rates. Since about 40% of the excluded poor live in low-performing states, better performance in these states will be a tremendous step towards increasing inclusion of the poor.

What about cash transfers?

  • Recently, a lobby for replacing employment guarantee programmes with cash transfers has emerged among economists. This would get cash into the bank accounts of individuals without distorting labour markets.
  • However, Indian experiments with identification of the poor have been dismal failures, leading to enormous errors of inclusion (the non-poor getting benefits) and exclusion (the poor being left out).
  • Cash transfers have other unanticipated impacts too, and countries like the US, which have considerable experience with cash benefits, have struggled to incorporate work requirements in cash assistance programmes.


Given these considerations, it would not be prudent to let our cynicism about public programmes push us into dismantling the MGNREGA instead of reforming it to ensure better performance — both for household welfare and for infrastructure development.



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