Hyderabad: The Mahatma
Gandhi National Rural Employment Guarantee Act, enacted in 2005,
may be destroying enterprise in rural areas and creating an army
of unskilled labourers unfit for employment elsewhere, finds a new
The study, undertaken in 100 villages of Medak district in Andhra
Pradesh and funded by the Consultative Group to Assist the Poorest
(CGAP) of the World Bank and Ford Foundation revealed that casual
labour, which the rural employment guarantee scheme is creating,
may deter long-term growth.
While describing MGNREGA as a good scheme to put money into the
hands of the very poor in the short run, the study advocated the
need to implement it in a way that does not hamper enterprise.
It found that the higher wages under the Act had increased the
cost of labour for many enterprises, including agriculture.
The conclusions were reached after a three-year-long Ultra Poor
Programme (UPP) failed to show any impact in India, while similar
pilot projects in countries like Pakistan, Bangladesh, Haiti,
Peru, Ethiopia, Yemen, Ghana and Honduras funded by the same
organisations yielded good results.
Under the UPP, aimed at lifting ultra poor households out of
extreme poverty, $357 (about Rs.18,000) was spent on each of the
3,485 ultra poor members.
Shamika Ravi, an assistant professor in economics and public
policy at the Indian School of Business (ISB) Wednesday shared
with the media the outcome of the first complete evaluation study
The NGO wing of Swayam Krishi Sangam implemented the scheme, under
which targeted individuals chose micro enterprises like buffalo,
goat or sheep rearing, and poultry farms, telephone booths,
tailoring shops, grocery shop, tea stalls and horticulture
The people chosen for such enterprises were offered all services,
including training and stipend to meet the expenses.
"After three years we found that there is no net impact in terms
of income, consumption and asset accumulation. What was worse,
more than half of the people to whom such assistance was offered
had sold their assets and gone back to casual labour under the
government scheme," she said.
"Enterprise was not giving them anything over and above daily
wages. Running an enterprise is not profitable anymore," Ravi
The implementation of the UPP started in 2007, around the same
time when NREGS was launched; although the act was passed in 2005,
it was implemented two years later.
National Sample Survey data also shows that between 2004-05 and
2009-10, real rural wages increased 27 percent across the country
while in Andhra Pradesh, where NREGS implementation is far better,
the increase is 38 percent.
"Doing casual labour can't be the way. People eventually want
regular income," Ravi said, suggesting that NREGS be implemented
in a way which allows enterprise to thrive.
Terming NREGS a political and not an economic decision, she,
however, said the programme should continue as India has a very
large number of very poor people.
"The problem is when it gets too political. There is too much
upward pressure to increase number of working days and the wages,
especially before elections," she said, and suggested that work
under the programme should be restricted to 100 days a year so
that rural poor who don't get work during the summer are provided