Bias in the criticism

CRITICS of the employment guarantee programme base their case on two premises. Most of them ask: Where is the money for it going to come from? Others refer to the "leakages" due to corruption, which would defeat the purpose. Although neither question is necessarily hostile to the idea of such a scheme, both reveal mindsets that refuse to think "out of the box" to address the long-standing problem of poverty and unemployment.

The more aggressive variant of the criticism against employment guarantees, more often than not also unabashedly supporting unbridled liberalisation, poses a lesser problem. Its case is in any case slanted against the poor. Typically, such critics tend to inflate the cost estimates without taking into account the economic benefits that would accrue from the programme. Nevertheless, the issue of how much the programme will cost still remains relevant, if anything, to show how little the rich are being asked to part with for the benefit of so many.

There are several estimates available, each resting on a set of assumptions. The most commonly cited one is by Jean Dreze, who prepared an estimate for the National Advisory Council in August 2004. How much the guarantee costs depends on several factors: the number of people to be offered the guarantee; the number of days of work guaranteed; and the wage rate. The ratio of wages to the cost of material inputs also has a bearing on the cost of the scheme. Dreze's estimates are particularly useful because some of the assumptions (such as those relating to the wage-material cost inputs, the wage rate, and so on) are fairly close to what has been specified in the Act that was finally adopted by Parliament.

Assuming that the ratio of wages to materials is 60:40, which is what the Act provides for, Dreze arrives at a figure of Rs.100 a person on every day of employment generated. Using the Planning Commission's estimate of 26.8 crore people below the poverty line, and taking the average family size to be five, Dreze estimates that four crore rural households below the poverty line would be the potential target of the programme. So the guarantee of 100 days of employment would cost the state Rs.40,000 crores. This, he estimates, would be about 1.3 per cent of India's national income in 2004-05.

However, the phased implementation of the programme implies that it would not cost that much to start with. Dreze estimated that if only 150 districts were covered in the first year (actually 200 under the Act), it would cost merely half a percentage point of the national income. Rough calculations based on Dreze's estimates indicate that the coverage of 200 districts will not cost more than two-thirds of a percentage point of India's national income. By the fourth year, when all 600 districts are covered, the programme is expected to account for just a little less than 1 per cent of the national income.

This kind of costing does not take into account the fact that the participants also create assets and add value with their labour power. These estimates thus suffer from an inherent "upward bias". The costs, as a proportion of the national income, are likely to fall faster when the economy grows. Dreze says that in that case the option may be to retain the 1 per cent of gross domestic product (GDP) norm and then extend the reach of the programmes to all individuals instead of guaranteeing employment at the household level.

Dreze points out that the legal guarantees enshrined in the NREGA, when compared to the Maharashtra EGS, are restrictive in scope. The guarantee in the EGS is more "open ended", pledging employment throughout the year. Dreze points out that there is no need for the government to develop "cold feet". Maharashtra, he points out, "has already crossed the bridge without running into a fiscal crisis, despite taking on more demanding legal obligations".

Mahendra Dev, Director of the Centre for Economic and Social Studies, Hyderabad, does not think that the programme will be difficult to finance. He estimates that the full-blown programme would cost about Rs.20,000 crores. He rests his case on the EGS, which costs about Rs.1,000 crores annually. He suggested that a tax be levied for financing the scheme, apart from relying on borrowings. To those who are fearful of a possible widening of the fiscal deficit, he answers that "a small increase in the deficit will not have negative consequences because the programme will have a multiplier effect". "After all, it will generate assets and result in economic growth. Increased incomes will also result in improved literacy levels and better health in rural areas," he said.

Since the government has already allotted funds for the Sampoorna Grameen Rozgar Yojana (SGRY) and the National Food for Work Programme, which are going to be integrated into the employment guarantee programme when it is launched, allocations for these must be deducted to get an idea of how much extra is needed for funding the guarantee. The last Budget allotted Rs. 11,000 crores, against Rs.4,020 crores in the previous year. However, Dreze has pointed out that this "increase" in allocation was made after assessing the value of the foodgrain component at an "economic cost", at Rs.11 a kg.

There are several ways of looking at the arguments of those who say that the guarantee is too expensive. One is to see what the government has forgone as taxes. The other is to see how other sections, by no means poor, have benefited from government policy, even while the government suffered losses.

It is well known that the tax-GDP ratio has come down significantly since 1990-91. One estimate is that the government would stand to gain Rs. 30,000 crores as additional revenue if it had not forgone taxes in favour of the rich.

The issue can also be posed a little more provocatively. In the Budget for 2004-05, Finance Minister P. Chidambaram proposed a tax of 0.60 per cent on stock market transactions, which would have netted the government Rs.24,000 crores. However, under pressure from brokers, he reduced the tax to 0.15 per cent. The Rs.18,000 crores in lost taxes would have permanently funded at least 45 per cent of the cost that Dreze estimated for the full-fledged employment guarantee in 600 districts.

Corruption is another matter. It is surprising how corruption is never cited as the reason for stopping the building of a road or a flyover in a city, or a power project, not even when such projects are steeped in controversy. It would be silly to deny that anti-poverty programmes are immersed in corruption. Anecdotal evidence does indicate that the "leakages" are indeed substantial. However, the selective concern for corruption indicates a serious bias against substantive anti-poverty measures.

There are two issues about corruption and the guarantee programme. First, the guarantee is a significant measure aimed at empowering rural people. Its status as a guarantee is meant to enable them to demand what is due to them as a right. The other issue is that despite all the drawbacks that remain, the Act leaves a lot of room for the poor to contest those holding power at the local level. This is made possible by the pre-eminent status given to panchayats in implementing the guarantee. The provision, for instance, that muster rolls are to be freely available for public inspection at the gram panchayat makes it possible for the poor to contest political authority.

To ignore these issues and pose the issue in terms of corruption is to ignore the possibilities that have been opened up by what is arguably India's most significant piece of legislation since Independence.