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.

Next Steps in Strategic Relations: Completing The Triangle

A recent research paper forecast that the World will become bipolar in 25 years and Tripolar by the middle of the 21st century and that this possibility would lead to greater technological cooperation between the USA and India. In this context, the two recent US-India framework agreements (defense & nuclear) are just the beginning of a far reaching transformation of the global order. Realization of potential into reality requires work not only on India-US relations, but more importantly on India-China relations over the next 12-18 months, to reap the benefits.
First we should turn our attention back to the second pole China by implementing the agreements reached earlier this year between Dr. Man Mohan Singh and PM Wen Jibao. One was an agreement to enhance economic cooperation and double the volume of bilateral trade. The India-China study group (of which I was a member) had identified several constraints and barriers to trade in goods and services. India and China must work together to ensure that the route map outlined for addressing these issues is followed and the full potential of trade in goods in services is realized expeditiously.
The second was a framework agreement on defining the India-China border. Its importance can be gauged from the fact that since PM Rajiv Gandhi’s pioneering visit to China, two decades of meetings on the border issue had failed even to define the line of control between the two countries. As India is quite used to the concept of ‘LOC’ (a la J&K), some Chinese objective or fear must have prevented this from happening. The framework agreement therefore reflects a change in China’s approach to India and this must be followed up to a successful conclusion. The key to an India-China border settlement and lasting peace is secure and defensible borders, not how much territory is exchanged. A fair, just and equitable settlement of the border that reduces the risks & enhances the security of both is in the long term interests of both countries.
The third is to carry forward the strategic dialogue. We could perhaps propose a bilateral agreement on non-proliferation of WMD’s and nuclear/space technology to each others neighbors (e.g. Pakistan, Bangladesh; Vietnam, Taiwan). To avoid any ambiguity such an agreement should have an explicit, detailed list attached. Such an agreement would reduce suspicion and enhance mutual trust.
Our communist parties, the CPI and the CPM, can play a vital role in this process by convincing their fraternal party the Communist Party of China of the fundamental need for better India-China relations.
The successful completion of these three steps would set the stage for a comprehensive co-operation agreement (/FTA) covering goods, services, FDI and skilled personnel, between the two countries. An India-China joint study group for the same could be set up by the end of 2006-7. This could lay the foundation for the formation of an (East) Asian Economic Community.
There is also a lot of work to be done on the Indo-US front. Indian business, including US MNCs in India, must work with the NRI/PIO community in the USA to persuade the US Congress to change US laws and rules to provide India full access to Civilian Nuclear and all ‘Dual Use’ technology. At home transparent rules and regulation for private investment (including FDI) in nuclear power must be put in place. A Commercial Nuclear Power Corporation could be set up with 49.9% govt. equity and 50.1% private equity (investors, Indian companies and FDI). Some government re-insurance (for major catastrophe) as well as risk cover for loans and/or central purchase of nuclear power may be necessary initially (for the first few private nuclear power plants). The great advantage of such plants is that they can be subject to international rules and safeguards without affecting our existing nuclear establishment in anyway. Logically we can be “no worse off” than before, if we keep our current facilities as non-commercial ones for the time being. Subsequently we can declare one or more (Tarapur, RAPP) as commercial ones, if and only if it makes us “better off.” The choice is ours (nuclear experts), not that of the US or another country.
We must also activate our diplomatic machinery to free up the flow of civilian nuclear technology from Japan, Russia, UK, France, Germany and other EU members. If this can be done by the time the US Congress approves the promised changes, India will reap the maximum benefit of competition among them to supply materials, equipment and power plants to India. We could similarly promote greater competition in defense technology transfer and co-production by signing appropriate agreements with Japan and others where they are needed to lubricate flows of defense technology or equipment.
Though media reports suggest that F16/F18 deals are imminent, considerable staff work has to be done to give substance to the Indo-US defense agreement, so that the benefits begin to flow to both countries. We should also expand the discussion from air to naval equipment and components, without which a ‘minimum nuclear deterrent’ and ‘No first use,’ nuclear policy is not credible to any recognized nuclear power.
If these and related issues are pursued with seriousness and determination, the Indo-US strategic partnership will help accelerate the transformation of the World from a uni-polar one into a stable tri-polar one, with the USA, China and India as the three poles. President Bush and Dr. Man Mohan Singh must be congratulated for taking bold decisions that may well determine their place in history.