MNREGA: Gadkari wants to change key ratio; 80% states not following it anyway

  • Vignesh Radhakrishnan, Hindustan Times, New Delhi
  • Updated: Nov 06, 2014 17:47 IST

Union minister for rural development Nitin Gadkari proposed many broad changes in the Mahatma Gandhi National Rural Employment Guarantee Act in September.

The revisions ordered in the rural job guarantee programme — popularly known as MNREGA — included alteration of the ‘labour wage:material cost' ratio from 60:40 to 51:49.

Several economists have opposed this change and a debate is on. A look at data shows this debate may be pointless because many states are following their own ratio regardless of the Centre’s plan.

What's this ratio?

The 'labour wage: material cost' ratio determines how much a labourer gets out of every rupee spent by the government in MNREGA projects. For example, if Rs 100 is required to employ one worker per day, then, according to the 60:40 ratio, Rs 60 will go to the labourer as wage and Rs 40 will be used to buy materials for him to work.

What's the debate?

Gadkari's proposal to change the ratio from 60:40 to 51:49 saw 28 economists jointly send a letter to Prime Minister Narendra Modi asking him not to dilute the act.

They opposed the change in ratio, arguing there was no evidence it would increase productivity.

Gadkari countered, in an interview to the Indian Express, “It (the decision) has been taken keeping Parliament in confidence and all parties have supported it. We wish to spend the money constructively and we need to do some value addition. After all, it’s government money.”

HT looked at the MNREGA data for 2014-15 and found 23 of India’s 29 states are not adhering to the existing 60:40 ratio.

Considering the pan-Indian scale in which the MNREGA is implemented, it is probably not possible to maintain this ratio accurately. So, our analysis has an error margin of 5 percentage points.

Flouting by huge margin

The 23 states which flout the ratio have compromised hugely on material cost by increasing the labour wage to alarming levels.

For instance, the labour:material ratio in Tamil Nadu stands at 98:2 for 2014-15. It means that only 2% of the MNREGA budget has gone for procuring materials and the rest were all given out as wages. Another state which flouts this rule by a huge margin is Kerala where the ratio is 97:3.

This suggests really low asset creation.

When asked whether states such as Tamil Nadu and Kerala have crossed the line, Abhiroop Mukhopadhyay of Indian Statistical Institute argued, "I would make it just like Tamil Nadu. I am indeed happy that some states have realised the importance (like TN) and use the money for labour payments."

The list of those straying from the existing labour:material ratio can be accessed here:

Is this debate needed?

With 80% of states deviating from Centre’s norm, why are left and right economists fighting over the ratio, which gets implemented only on paper and not on the field?

Mukhopadhyay concedes data proves the debate is pointless, but is quick to drive home his point of view.

"I find the requirement to build productive assets a complete diversion of the main aim of the scheme, which is to give dole to unskilled labour since they cannot find work elsewhere."

Dr Kaustav Banerjee of the Jawaharlal Nehru University, however, differs.

"The MNREGA was designed to 'create sustainable assets' apart from guaranteeing employment. There are two things here, 'create', which could strictly be read to mean new assets, and 'sustainability'. New assets are not always necessary and hence the MNREGA could be used to renew/fortify older assets in which case the ratio of labour would be much higher than the prescribed ratio."

If the NDA government wants to improve productivity by increasing the ratio of material cost, then it must find a way to make states fall in line.

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