Job scheme wreaks havoc on India's labour market | SupportBiz

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Job scheme wreaks havoc on India's labour market

The Indian government’s marquee job guarantee scheme,the Mahatma Gandhi National Rural Employment Guarantee Act, is distorting labour markets across the country and despite expenditure of $8.91bn for 2010-11, there has been no visible improvement in rural infrastructure as a result. The scheme is also adding to India’s federal deficit, already under immense strain due to fertilizer and fuel subsidies.

Crushing the labour markets

The government’s job guarantee scheme has been widely criticized as contributing to labour shortages. In 2011, the government had to direct states to halt the scheme during peak farming seasons. Construction firms, which are heavily dependant on labour, have expressed concerns over non-availability of workers due to the job guarantee scheme. Farm operations are also suffering due to scarcity of workers.

M Purushottam Reddy, operator of Swamy Nursing and Florist, feels the MGNREGA program has hit his business hard. Reddy operates a wholesale nursery operation spread over 35 acres south of Bangalore.

“Earlier labour was easily available. It was only a question of managing it. Now with schemes like the MGNREGA, we have situations where demand is immense but production struggles due to labour shortages. Most of the labour prefers idling away or doing relatively less physical work under the scheme. Not many are attracted to the hard work on farms anymore. They are basically guaranteed wages and that takes away their initiative to work more meaningful jobs.

“And labour costs have also risen dramatically due to this. Even at higher wages there is no guarantee of finding a consistent labour force for my farm.”

Kamlesh Patel, proprietor of Limbani Saw Mills, insists such vote-pulling schemes are destroying the labour market in India. He runs a wooden packaging business in Hosur, Tamil Nadu.

“This is the problem with India. Short-sighted populist schemes like these help nobody. While the labour force is whiling away or digging for inconsequential works, businesses are suffering due to protracted labour shortages. How do these labourers expect to get out of their poverty if they keep digging all their lives. The government is just making them more dependent on sops. It is bad for the economy and scoiety at large.

“Workers at my mill gain skills that increase their employability over time. There are many businesses which offer such opportunities. But, thanks to the job guarantee scheme, labourers have lost the incentive. They rather sit out most of their day knowing they will get paid still than being part of a set up where their contribution is crucial.”

Symptoms of a serious sickness

The MGNREGA has come under fire from the Comptroller and Auditor General (CAG) of India, which in its performance audit found major deficiencies in the execution of the scheme. Questions have been raised over distribution of wages and effectiveness of the scheme in improving rural infrastructure.

But the biggest malaise of the scheme is entrenched corruption. There are reports of fraudulent job cards that siphon of the scheme funds without any actual labour resource allocation. Reports of substandard materials and bloated bills abound.

Rural Development Minister Jairam Ramesh also concurs that the scheme is beset by problems. He has repeatedly pulled up state governments over enforcing prescribed audits and lax implementation. He is also concerned about the serious dearth of quality assets being created under the scheme.

UPA leader Sonia Gandhi has also expressed concerns over corruption in MGNREGA implementation. Gandhi said at an MGNREGA Conference: "Talks about reform in MGNREGA are taking place for quite a long time. The time has now come that we implement them. We cannot igonre the complaints that are coming regarding the irregularties and corruption in the scheme." 

Janata Party leader Subramaian Swamy had recently said that the Centre should scrap graft-saddled welfare schemes such as MGNREGA as it was not benefitting anyone. He said that, instead, economic reforms are needed to boost economic growth.

The job mandate

The MGNREGA was initiated to achieve the development of rural areas and provide consistent employment to households. The scheme generally targets rural development works – Water conservation, roads, flood water management, afforestation.

The scheme was introduced in August 2005 in a bid to bridge the gap in urban and rural incomes, with a total outlay of $2.5bn in 2006-07 with wage expenditure being 66 percent of the total outlay. In 2010-11, expenditure reached $8.91bn with wages now accounting for 71 percent of the total outlay.

The MGNREGA act mandates state governments to implement job guarantee schemes. One hundred days of employment (or unemployment allowance) per household must be provided to rural workers (meeting the able and willing pre-requisite) each financial year.

Under the act, the central government provides the cost incurred by the payment of wage, three-fourths of material costs and a part of the administrative cost. State governments provide the cost of unemployment allowance, one-fourth of material costs and administrative costs of the state council.

As the state governments pay the unemployment allowance, the onus is on them to offer employment to workers. However, they can fix the unemployment allowance, subject to the stipulation that it not be less than one-fourth the minimum wage for the first 30 days, and not less than half the minimum wage thereafter.

All the works under the aegis of the scheme should only be undertaken by manual labour and no machinery or tools can be used. Only basic implements like shovels, crowbars are used. This severely limits the opportunities to improve the skills of labourers, who basically work on low-quality projects.