Friday, January 07, 2005

Employment Guarantee Act

The Employment Guarantee Act (EGA) that the present UPA government has tabled in the Parliament has been the subject of a number of comments, op-ed pieces, blog posts. Let me try to get them in one place here.

First, the links:

M.K. Venu has an op-ed in Economic Times about the bankruptcy of some of the arguments against the Employment Guarantee Act (EGA). Let me just say that I agree with pretty much everything he says.

Another op-ed in Economic Times (20 December 2004) recounts some nice arguments for EGA.

Amit Bhaduri, in an op-ed in the Hindu (27 December 2004), points out an interesting link between EGS and the right to information bill that has also been tabled in Parliament: since EGS-related work will have to be carried out by local bodies (Panchayats), the local people should have full access to what is done and to how the money is spent. Therefore, EGS itself would be rendered rather meaningless if the locals are not supported by a strong right-to-information bill. Bhaduri chides the government for not being bold and going far with both the EGS bill and the RTI bill; he feels that both are badly watered down. T.S. Srinivasan (Yale University) has responded; Prabhat Patnaik (Jawaharlal Nehru University) has written an op-ed questioning some of Srinivasan's views.

What do I think?

My initial reaction was: though it is a good scheme, can we afford it? First, let us start with some (necessarily approximate) numbers: EGA will require (about 5 crore families x 100 days x 100 Rupees per day per family) Rs. 50,000 crores (Rs. 500 billion, or about 10 billion dollars, or about 2 percent of our GDP). Admittedly, his amount is staggering; if we further consider the possibility that 5 crore might be an underestimate of the actual number of needy (really poor) families, it is truly forbidding. My initial worries about whether we can afford such a massive expenditure appeared valid.

Here is how this large amount comes down to a more reasonable figure: (a) we could club all the previous schemes for poverty alleviation, and bring them under the EGA umbrella, we probably are going to save Rs. 15,000 crores. (b) the cash component of EGA is only 60 percent of the expenditure (with foodgrains contributing the rest). Both these considerations bring the "really new" (read additional) spending down to Rs. 21,000 crores, or just under 1 percent of GDP.

There are the usual questions: will this money actually be put to good use, will our politicians play ball in a fair manner (or are they already smacking their lips at the prospect of appropriating all this money?), are there better uses for this money, etc. If we still want to rein in our fiscal deficit, where should we try to get the additional revenue from? They are all good questions, and I hope economists and other social scientists who are grappling with them will find the right (or optimal) answers.

From a humanitarian angle alone, it is clear that EGA has its merits. Its potential benefits are truly immense: so many poor families are helped, so many children will not need to go to work, so much of foodgrains (that are otherwise rotting or eaten by rats) will be put to good use, and so on. In addition, so much of rural infrastructure will get a boost (rural roads, irrigation facilities, sanitation facilities, etc). Migration from rural regions to urban centers will come down. etc, etc.

I have not seen good arguments against the scheme, only some rants about how it will not work, how our politicians cannot be trusted with it, how we cannot afford it, etc. Atanu Dey even "[goes] out on a limb and predict that if ever this EGA is implemented, it will actually increase the level of poverty and the number of poor in India". However, he hasn't (so far, at least) given any economic / political arguments to show that his dire predictions have a greater likelihood of coming true.

Even to a conservative economist, it must be clear that EGA rests not (entirely) on economics, but on politics. Given the political driving force behind it, conservatives are probably better off by conceding this one to the lefties, and put up a fight at two levels: one is a fight in which they trade EGA for something that is very dear to them (such as, (a) getting rid of subsidies for kerosene and LPG, and in one stroke, getting rid of administrative pricing of oil and oil products completely, (b) reforms of the power sector, (c) privatization of PSU's, etc.), and the other is a more serious fight to create a good system of delivering on EGA's promises with as little a wastage as possible. For example, which level of government is best suited for implementing EGA? What are the ways in which EGA programs can be made self-selecting (i.e., only those whom EGA is meant to help will actually come forward to work under EGA)?

One final thought: many of the arguments about EGA were trotted out when the (rather limited, or should I say "targeted") mid-day meal scheme that existed in Tamil Nadu in the seventies was expanded to a near-universal status by the then Chief Minister M.G. Ramachandran. Tamil Nadu is not exactly a heavenly place now, but much of the progress (particularly in educating its girl children) it has made in terms of development indicators has been attributed to that one program.

Update (23 Jan 2005): Rajiv Dawan supports a scheme that guarantees employment to the rural folk. He argues, quite convincingly too, that the current Bill dilutes this goal in many ways. He concludes the article with this:

National guarantees for the poor cost money, for which the poor agree to work on public projects at minimal wages. If designed properly, the NEG Bill will be a landmark. Otherwise, at the next election, the UPA Government will learn the consequences of making false promises to the voting poor.