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NREG: A welcome move if implemented properly

The NATIONAL Rural Employment Guarantee (NREG) scheme will have cost benefit implications with calculations and evaluations coming in from all comers of the country. India?s population as percentage share in the world?s total population has remained unchanged. However, the size of population in rural India is extremely high at 720 million that alone is more than the size of population in any country except China.

india Updated: Jun 18, 2006 00:04 IST

The NATIONAL Rural Employment Guarantee (NREG) scheme will have cost benefit implications with calculations and evaluations coming in from all comers of the country. India’s population as percentage share in the world’s total population has remained unchanged. However, the size of population in rural India is extremely high at 720 million that alone is more than the size of population in any country except China.

Calculations on unemployment and underemployment in such a scenario do not carry much meaning unless the population is seen as idle manpower in rural India is enveloped in productive works. Rural employment addresses this question. The related issues are stopping forced migration, controlling the size of slum population in urban areas etc.

The National Rural Employment Guarantee Act has promised wage employment to every rural household, in which adult members volunteer to do unskilled manual work. The NREG Act proposes assured employment of at least 100 days per person from a single household per year at a fixed wage rate of Rs 60. Based on the current size of population at 720 million in rural India, we can assume that 120 million individuals are eligible for employment under the NREG.

The assumption is the size of household pegged at six. The employable eligible number of population multiplied by the number of days (100) to be employed per year multiplied by the pegged wage rate (Rs 60) shows that an estimated Rs 72,000 crore needs to be spent on the very first year on the project. Roughly, it is 3.0 per cent of gross domestic product (GDP) of India at present.

For 72 crore population in rural India, it means spending Rs 1,000 per individual (representing a household) per year which is very little but which definitely helps as support income during off-agricultural season. An additional Rs 500 from being employed; under NREG will add to their income if such employment does not clash with the prime time when they remain engaged in agriculture. The prevailing agricultural wage rate that is offered to the agricultural labourers in most of the regions in rural Uttar Pradesh is Rs 40.

On the assumption that it will be skill consistent, the newly planned works under NREG will have no problem in terms of availability of workers. The transportation cost of the available worker has to be zero so that the works are executed preferably within the village.

I believe finance for investment was never a problem. There is huge idle asset (non performing assets) with the banks. We can think about utilising a part of it. Forget unearthing black money and concealed wealth.

Already a percentage of world debt, India’s share varies between 4.0 and 6.0 per cent, with per capita debt at around Rs 100. Even if the GOI goes to borrow a part of the money required to finance the NREG programme, it will have an income multiplier effect at the bottom of the society.

If we assume that the income that the bottom low-income people earn in rural India is readily spent on goods that they produce (agriculture and wage goods) then the income-generating process over years will be strong.

In conventional economics, ‘my expenditure is your income’, hence, the income expenditure multiplier will work to the benefit of the income-poor to the extent that the money spent (invested) is not siphoned off and the money received remains at the hand of the income-poor or comes back to the income-poor via the hand of the state.

The employment guarantee has to focus on creation of usable and re-usable assets that leads to development of physical infrastructure. The creation of productive assets has to focus on joint use or joint consumption. Unless the base of future employment and private action/entrepreneurship is created at present by present investment/spending by the government (public investment) the general failure of the sponsored projects will once again be proved.