Common NREGA myths debunked

An alphabet soup should not cause muddled thinking. Anatomists and ordinary folk have always known there is no direct link between the mouth and the brain. So why are so many smart economists and businessmen confused about NREGA?

This scheme pays (on an average) Rs120 per day to every adult member of a rural family for 100 days in a year. Wages are supposed to be paid once a week or failing that at least once a fortnight. They aren’t. Wages have to be paid through banks or where there aren’t any banks, rural post offices so that the money actually reaches the poor. But the opening of accounts has been a challenge and continues to be one. Often, there are no passbooks so accounts can’t be opened.

Anyway, what do the poor do when they finally get their money? There is credible evidence that they don’t spend it on personal consumption. In village after village in Chhattisgarh, Orissa and Jharkhand, Kaustav Banerjee and Partha Saha found that marginal farmers used significant portions of their NREGA income to buy chemical fertilizers and higher yielding paddy seeds.

So paddy yields in these districts went up from 50% to 100%. NREGA far from increasing consumption demand increased supply of food at least in this instance. Surely, there is no reason to believe that this is not happening in other districts across the nation.  (In any case, food inflation hasn’t been caused by a steeply rising or upward shifting supply curve.  Food production in India was 242 million tonnes last year and this year will see it exceed 245 million tonnes.)

Many people have also argued that NREGA wages keep the poor away from working as seasonal labourers on farms and that is another reason why food inflation has risen. This is untrue.  All over India farm labourers are paid in cash at the end of every day. Given their straitened circumstances this is an ‘overriding liquidity preference’ for the rural poor. Why would they say no to any work that puts cash in their pockets at sunset? What is more, the state mandated minimum wage is more than the NREGA wage in 19 Indian states. Why would the ‘rational’ rural poor give up a higher wage for a lower one?

The myth that NREGA causes labour shortages that increase the costs of the movement of food grains also persists. An economist working for a foreign broking house was quoted in a leading financial paper as saying that the rural poor prefer working on NREGA projects to roads and bridges (and so delayed infrastructure increases the costs of transporting food grains). Are contractors for roads and bridges paying lower than even the NREGA wage? If yes, they need to pay a market-clearing wage.

It is not just a good idea, it is the law. In any case, not more than 10% to 12% of the total annual food grain production is transported over large distances and the bulk of that is by rail, not roads. So NREGA wages are irrelevant.

The final claim that needs debunking is the one made by India’s tea industry: That NREGA has caused labour shortages (that have increased the price of tea). It is a dirty and well-kept secret that many tea garden workers in India are still paid less than Rs40 per day because they are supposed to get rations, accommodation and medical facilities in addition.  Nobody knows if these services cost the tea plantation owners Rs80 per worker per day or an additional Rs30,000 per worker per year. They should tell us.

Maybe the new minister will ask them to under MNREGA 2.0. Till then consider this: the world’s largest tea producer is an Indian company that will produce over 100 million kg of tea this year at an average price increase of Rs15 per kg, earning an incremental Rs150 crore. That is enough to pay 50,000 workers NREGA wages for 365 days. So will they pay their workers more?

Ultimately, NREGA is a commitment to the kind of nation we aspire to become. And an affirmation that we believe there is more to life than merely huckstering through eternity.

After 15 successful startups worldwide, Ghiara is striving to master the short essay while looking for his next startup.