| |
|
 |
|
|
How feasible is a rural employment guarantee? |
|
| Jul
5th 2004, Jayati Ghosh and C.P. Chandrasekhar |
|
There
is no doubt that employment generation has emerged as
not only the most important socio-economic issue in
the country today, but also the most pressing political
concern. The mandate of the recent elections is clear
on this: the people of the country have decisively rejected
policies that have implied reduced employment opportunities
and reduced access to and quality of public goods and
services.
Indeed,
one of the main reasons for the defeat of the previous
government was the widespread dissatisfaction with that
government's economic policies. The complete collapse
of rural employment generation (which that government
tried to cover up through statistical jugglery and false,
even insulting claims about ''India shining'') was a
dominant cause of public dissatisfaction.
Chart 1 shows why this should be so. The latter part
of the 1990s witnessed total rural employment (of all
kinds – that is self-employed and wage labour, principal
or subsidiary occupation, full-time or part-time) growing
at the miserable rate of only 0.58 per cent per year,
at a time when the rural population was growing at around
1.7 per cent per year. Subsequently, matters have hardly
improved, although the lack of comparable data does
not allow us to make meaningful calculations of the
rate of change.
Chart
1 >>
This was why almost all the political parties that currently
form the ruling United Progressive Alliance, as well
as the Left parties that have extended outside support,
made the issue of employment a major plank in their
electoral campaigns and their manifestos. And the promise
to do something about rural employment generation in
particular was probably one of the most significant
promises that actually resonated with the electorate.
Therefore, it was only to be expected that the promise
of generating rural employment through public works
programmes would find major expression in the declared
programme of the new government – avoiding it would
have meant a major retraction from all the promises
that have actually won this new government its current
power.
Fortunately, the new government has recognised the importance
of this issue, and the need to do something to regenerate
rural economic activity in particular. One of the first
sections of the Common Minimum Programme of the UPA
government makes the following promise: ''The UPA government
will immediately enact a National Employment Guarantee
Act. This will provide a legal guarantee for at least
100 days of employment on asset-creating public works
programmes every year at minimum wage for every rural
household.''
This is not a new idea – the United Front government
in 1991 had floated such a scheme, and it has already
been sought to be implemented in some form by state
governments such as those of Maharashtra over several
decades. However, such a commitment by the central government
is indeed new, firstly because it promises to make this
a legal right of all citizens, and secondly because
the onus of finding the funds for such a programme (if
not the actual implementation) rests squarely with the
central government rather than with the states.
This is a very important commitment, and one that should
be given top priority, if the new government wants to
remain faithful to its mandate. However, this particular
promise is already being excoriated in the financial
press, and by skeptical observers who find any public
outlays that benefit the common people to be ''populist''
and undesirable, even when they wholeheartedly approve
of fiscal measures that end up transferring huge amounts
of public assets and resources to large capital and
the already rich.
The main criticism that is being raised against this
programme is that it would simply be too expensive and
therefore impossible for the government to fulfill this
particular promise. All kinds of extravagant claims
are being made about the fiscal outlays that are required,
and the numbers are so inflated as to make the attempt
appear to be impossible.
In this context, it is worth investigating the actual
costs likely to be associated with this programme in
a more realistic way. The first point to bear in mind
is that, while the employment guarantee is a legal guarantee
provided to every rural household, quite obviously every
such household would not take up the offer. Employment
schemes have the great virtue of being self-selecting
by the poor (and therefore not requiring targeting)
since anyone who can get income above the minimum wage
through any other activity would not be interested.
Therefore, it is likely that only a proportion of rural
households would choose to avail of the offer and take
up such employment, and even among such households,
not all of them would choose to take up such employment
for the full 100 days that are promised. Given the prevailing
estimates of rural poverty, wage incomes and occupational
structure of the rural population, the chances are that
between one-third to around 40 per cent of all rural
households would choose to exercise this right across
the country – which is between 49 to 59 million households.
This does not necessarily mean that only this number
of households would be involved in such a programme;
rather, that the total number of employment days that
would require to be generated would be around that number,
with possibly more households than that participating
but some households taking less days of work from such
programmes.
Now consider the cost per household. This involves providing
100 days of work to any member of the household at the
minimum wage. The minimum wage varies across states,
but the weighted average can be taken as Rs. 60 per
day. Of course the assumption must be that the wages
would be equal for men and women workers – which is
what is legally required but has not always been followed
in employment programmes thus far. This means that the
wage component of the cost per participating household
would be Rs. 6,000 per year.
Assume that wages will account for two-thirds of the
total cost, so that the non-wage component would come
to Rs. 3,000 per year, generating a total cost of Rs.
9,000 per year per household. The non-wage component
is slightly less than it has been in recent years in
existing employment schemes, but it is argued that this
is easy to achieve especially with decentralised panchayat-level
control over such resources and the implementation of
this programme.
This means that the total cost of such a programme would
probably come to somewhere between Rs. 44,000 crores
and Rs. 53,000 crore per year. These calculations are
presented in Table 1. |
|
Table
1 : Estimated cost of employment guarantee
(Figures in rupees per year) |
Wage
cost per household |
Non-wage
cost per household |
Total
cost per household |
6000 |
3000 |
9000 |
(Figures
in millions) |
Total
households |
40
per cent of households |
33
per cent of households |
148
|
59.2 |
49.3 |
(Figures
in crores per year) |
Total
cost with
40 per cent of households |
Total
cost with 33 per cent of households |
53100 |
44100 |
|
|
At first glance this may seem like a large amount for
an annual outlay. However, a number of points have to
be borne in mind in this connection. First, even if
such employment generation yielded no other positive
result, the fact is that increased wage incomes in rural
areas would generate more demand for rural goods and
services, and thus generate positive multiplier effects.
In a condition of major economic slack, such as operates
in the rural economy of India today, this would have
large beneficial implications for material conditions,
and even contribute to increased tax revenues because
of higher levels of economic activity.
Second, it must be remembered that such a programme
does not involve an expenditure of resources for the
sole purpose of creating employment. Rather, the idea
is to use the workers productively in activities which
will build or maintain assets in the countryside, or
provide important social or economic services. So such
expenditure will yield dividends not only in terms of
higher levels of economic activity in the present but
also through improving the conditions of production
in rural areas. There are many such potential activities
which can have important effects on supply conditions,
productivity and sustainability of rural economic activities,
in both agriculture and non-agriculture.
For example, constructing and maintaining roads and
other connectivity (which has thus far been the most
popular form of activity in such schemes) has direct
and indirect effects in agricultural marketing and a
whole range of other economic activities, besides generally
improving the conditions of rural residents. But other
activities, which are often far less captial-intensive,
such as building and maintaining bundhs, minor irrigation
works, clearing out and desilting ponds and rivers,
also have very positive short run and long run effects
on production conditions and can also improve the sustainability
of cultivation patterns generally, implying important
social gains.
But even these do not cover the full range of possibilities
in terms of productive and useful activities that can
be undetaken under such an employment programme. There
is a huge range of social services that must be performed,
which are now systematically underprovided across rural
India. These include activities such as those performed
by workers in educational and health institutions who
provide maintenance and support, the provision of mid-day
meals in schools, sanitation services, and the like.
There is no question that greater provision of such
necessary public services would greatly improve the
quality of life of rural residents, and also contribute
directly and indirectly to economic growth.
So this amount is really not very much when seen as
part of a broader public investment and development
programme that is particularly focussed on rural regeneration,
which is unquestionably the most urgent policy focus
today. In any case, some Rs. 6100 crores was already
committed to rural employment schemes in the interim
budget, so this involves an additional outlay of around
Rs. 40,000 crores.
Third, consider how this amount compares with other
expenditures made by the central government. Chart 2
provides the interim budget 2004-05 estimates of outlays
on defence, subsidies and rural employment, as well
as the current estimate of additional resource requirement
for employment guarantee. It is evident that the proposed
new outlay is well below the anticipated defence expenditure,
and even below the projected expenditure on subsidies.
Chart
2
>>
In any case, this projected amount likely to be spent
on employment guarantee is a trifling percentage of
projected GDP – amounting to only 1.55 per cent of projected
GDP at the coverage of one-third of rural households
and still only 1.86 per cent of GDP at 40 per cent coverage.
This is well below the proposed increased expenditure
of this government on education, and indeed well below
a large range of other less productive expenditures
of the government.
More to the point, it is substantially below the fiscal
effect of the large tax give-aways of the central government,
which over the period since 1980-81, have caused the
central tax-GDP ratio to fall from more than 13 per
cent to less than 10 per cent. It is interesting that
the same economists who have supported such huge transfers
to the rich through lower tax collections, have been
the most bitterly opposed to employment schemes which
would not only provide relief to the poor of the country
but also create valuable assets and provide important
social and economic services.
In sum, the employment guarantee scheme has much to
recommend for itself. It costs about as much or far
less than many other lower priority activities, which
have in some cases have been rightly emphasised by this
and previous governments. It can be dealt with in a
manner which simultaneously ensures the realisation
of the pressing need to increase capital formation in
rural India. If properly planned and implemented it
can help deliver much need quality public services in
rural India. By providing incomes to those it need it
most it can help redress an unacceptable feature of
the Indian economy – the persistence of large scale
poverty.
Finally, while achieving all this it would result in
increases in output and tax revenues, which helps finance
a part of the expenditure on the scheme. There can be
no better example of a winning initiative. Therefore,
there is no real need to defend it against those who
perversely welcome ''dream budgets'' with tax concessions
as progressive and market friendly, while illegitimately
dismissing an employment guarantee scheme that is targeted
at increasing capital formation and productivity in
rural India.
|
|
| |
|
|
|
|
