In defence of capitalism

Diluting MGNREGA does not make market sense

By Richard Mahapatra
Published: Monday 15 December 2014

Diluting MGNREGA does not make market sense


Last fortnight when more than 10,000 people trooped to Delhi to protest the budget cut in social sector programmes, the message was loud and clear: there is a sense that the new government is downsizing welfare programmes initiated by the last government. The loudest protest was against diluting or doing away with the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), the world’s largest public wage programme.

But is the government really thinking of doing away with MGNREGA? It has been sending confusing signals. The first rural development minister of the National Democratic Alliance (NDA) government, Nitin Gadkari, wanted drastic changes in theprogramme and even confirmed limiting its geographical coverage. In the first budget, NDA did not allocate much to the programme, fuelling the speculation that MGNREGA could be nearing its end. But this has been denied by the new Union rural development minister, Birender Singh.

One thing, however, is definite—the government is in a fix over the programme. Though it has adopted all the key programmes of the erstwhile Congress-led government, many Bharatiya Janata Party (BJP) leaders have doubts over MGNREGA. They admit in private that a lot of BJP-ruled states have successfully implemented MGNREGA and close to 40 per cent of the total employment demand for the programme comes from these states. It is, for sure, popular among the rural electorate.

So why does the government want to dilute it? MGNREGA, with an annual budget of around Rs 33,000 crore, has been criticised for being a dole that hampers investment in other “productive” programmes. In the past five years, BJP leaders and pro-growth economists have criticised the programme citing its impact on food inflation and for turning a huge labour force unproductive. MGNREGA, they say, is a public programme that has negatively impacted the capitalist economy. Not to forget that it is a legacy of the former government that touches rural households, and is, therefore, politically discomforting.

This column argues that doing away with MGNREGA is bad capitalism. Recently, the Reserve Bank of India came out with a study which negated the idea that the programme is fuelling food inflation and turning people unproductive. In fact, there are several studies that show MGNREGA has helped the market by increasing rural population’s spending capacity.

In the past nine years, governments have spent close to Rs 2,68,800 crore on MGNREGA. Of this, Rs 1, 88,180 crore has been given to people as wage—hard cash that they could spend on whatever they wanted. Some 22 per cent of India’s households have benefited, mostly comprising landless, small and marginal farmers. In the best case scenario, MGNREGA gives cash income of Rs 15,000 per household per year. This figure is more than double of the rural poverty line figure. The programme has resulted in a “trickle down” of cash that no other programme or private investment can boast of.

MGNREGA money has fuelled both food and non-food market demands. A study by the Indian Agricultural Research Institute says MGNREGA beneficiaries spend six per cent more on food items than non-beneficiaries. The trend is similar for non-food expenditures like on fans, lights and durable goods.

MGNREGA is not a wasteful expenditure. The programme has helped reduce undernourishment and nutrition deficit by eight-nine per cent. It has even helped rural households tide over the drought of 2009. The share of rural economic growth in overall national economic growth is significant and many economists have pointed out that the current growth rate is due to the boom in rural economy.

If the government ignores the programme in the name of growth and fiscal prudence, what will happen to the market which is being sustained through MGNREGA money?

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