Monday, August 22, 2005

Employment Generation versus Employment Guarantee

Over three decades ago PM Indira Gandhi introduced the policy of “poverty alleviation.” The rationale bears repetition as it has remained unchanged for decades and underlies the EGS. It was argued that, “Economic growth does not lift all boats equally. As poverty is pervasive, all these people cannot be left to suffer while we wait for poverty to be eliminated by economic growth. We therefore need targeted programs for the poor to give them relief till such time as poverty is eliminated.” During that period of Indian socialism, the rate of growth of per capita income was 1.3% per annum and poverty was on an uptrend. Dozens of poverty alleviation programs have been introduced by successive governments. We may recall that “those who ignore history are condemned to repeat it.” My fear is that unless the EGS is seen in an overall context of policy and institutional reform it will become just another poverty alleviation program to be supplanted by new ones by the next government. Then, ten-fifteen years from now a new set of brilliant young academics will be agitating for another revolutionary new program to alleviate the suffering of the poor.
Most people would agree with the contents of a 1988 Planning Commission paper “Efficient Labour Intensive Growth: Key to Accelerated Poverty Reduction.” Among other things it suggested a change in labour policy that is discouraging organised manufacturing industry from hiring unskilled labour and making it impossible for India to compete with other countries in mass (unskilled) labour intensive manufacturing. If the poor are to participate in the modern manufacturing or service sectors they must also have Basic/Primary education and information about job opportunities suitable for them across the country. However, even if these and other reforms for accelerating labour intensive growth eliminate poverty in fifteen years, there will be geographical (remote areas), seasonal (between sowing and harvesting) and cyclical (drought years) pockets of unemployment. Therefore in a 1999 Finance Ministry paper, “From Poverty to Prosperity: Reforms for Accelerating Growth,” I recommended an Employment Guarantee Scheme and a Right to Information Act along with other reforms for accelerating (employment) growth.
There are four elements of a successful EGS. First it must replace the dozens of poverty alleviation schemes in existence today. This can be done by amalgamating and integrating these schemes into the EGS, with a minimum 75% of EGS funds coming from these dissolved schemes. To ensure that the employment builds infrastructure assets that have a long term benefit to the local population, all local infrastructure building programs (village/block roads, water harvesting, irrigation & drainage, sewage & sanitation systems, school/PHC building & maintenance) should be within its purview. The concerned schemes departments must be required to provide their expert advise and assistance (consultancy) to the EGS scheme so that it builds productive assets.
Second, the EGS wage rate should be less than or at most equal to the local off-season market wage. If the former is raised above the latter, Rents rise and so does the incentive for corruption, with less chance of the poor getting any employment. In addition with a higher wage, even employed people will be drawn away from productive private jobs to the “sarkari jobs” where shirking is a birthright and accountability is low. The uniform minimum wage of Rs. 60 (about 3/4th of daily per capita GDP) may prove to be too high for high poverty districts making EGS as ineffective as earlier schemes (15% to poor).
Third, full disclosure must be built into the EGS rules. Thus the names of every person employed in the EGS, the hours worked and wages paid and the assets built, must be posted in a public place and be available for cross-checking by NGO’s subsequently.
Fourth, incentive compatibility must be ensured between the funding and the implementing agencies. A 90:10 Center:State funding ratio provides little incentive for the State government machinery to ensure that funds are spent efficiently. These could be corrected by merging the local area development programs of the State government into the EGS.
If these four elements can be ensured the scheme could be a very successful one. If not, a few years of good performance are likely to be followed by a sharp fall in effectiveness, as happened in the Maharashtra EGS. A mere law, even the Supreme Court, cannot ensure that every person in every remote village gets employment.

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