Twenty years of Right to Work

This year marks the twentieth anniversary of a landmark statutory right established by Parliament. This is the right to work, or right to employment. Such a right is envisaged in Article 41 of the constitution, that directs all States to secure a right to work, for all citizens.  This law was created as the Mahatma Gandhi National Rural Employment Guarantee Act which was passed in Parliament on August 23, 2005. It gave the right to a hundred days of unskilled manual work at a specified daily wage, for one member of every rural household that asked for it.  

NREGS due to its work requirement creates durable rural assets which also add to productivity and public welfare

One third of these jobs created were to be reserved for women. Employment is to be given within 5 kilometers of the residence of the applicant. And if the government is unable to create such employment, then it has to give some allowance in lieu of wages. This is the biggest social security and public works program in the world. Despite early skepticism it is now universally hailed as a stellar program of development even by the World Bank. 

The provision of rural jobs on demand is a proxy for unemployment insurance. In developed countries, an unemployed person goes and registers himself or herself at the employment exchange, and while looking for a job, gets an unemployment dole. India does not have such a system, since the labour market is not as well organised. Instead, we have the NREGA scheme (also sometimes called NREGS), which covers the rural population. 

Until the time that India has a full-fledged formal unemployment insurance with extensive registration and tracking of the employed and the unemployed workers, and a payroll tax collected from employers to pay for this, a scheme like NREGS will be essential

The NREGS employment demand spikes up during droughts and famines and that is why it is an “insurance” program de facto. The demand for NREGS falls when labour market conditions improve and there is plenty of work available for farm labour. If NREGS demand falls it is a good sign. If the program becomes redundant that would mean that rural India has reached full employment conditions. But we are far from that situation.  

Most recently during the pandemic, the demand for NREGS rose steeply, and the total expenditure in fiscal year 2020-21 was double of what was budgeted, reaching almost 1.2 lakh crore rupees, and generating 300 crore person days of work.

The provision of rural jobs on demand is a proxy for unemployment insurance

The benefits of NREGS are as follows. It provides employment during distress. The wages are linked to minimum wages, ensuring that it acts as an anti-poverty measure. Women’s participation is high, empowering them politically and giving them autonomy. Many work sites provide for creche services, to help women with young children to also participate. 

The public works programs created to provide MNREGS work builds public assets such as irrigation reservoirs, ponds, canals, rural roads, afforestation, and so on. In some States the program also includes building rural housing or private assets.  The availability of work in rural areas reduces the stress of urban migration on cities. During the pandemic there was large scale reverse migration to the villages, where people were provided work under NREGS. Since workers’ rights are enshrined in the law, they have a much better chance of securing those rights. Thanks to Aadhaar linkage, the payment of wages is directly deposited into bank accounts reducing leakage.

If NREGS demand falls it is a good sign. If the program becomes redundant that would mean that rural India has reached full employment conditions. But we are far from that situation

What about the negatives? Firstly, since it is a labour market intervention providing a wage floor and alternative option, the landlords and those who seek labourers are upset. They have often complained about the shortage of workers, or that NREGS is making workers “lazy”. 

Since the wages are minimum wages under NREGS, the alternative work needs to offer higher wage to lure workers away. Secondly, despite controls and biometric tools, there are still alleged leakages of funds that include methods like phantom musters of workers which help in siphoning out money, This leakage can be prevented only by permitting social audits by the villagers or non-government organisations. 

Some States like Rajasthan and Andhra Pradesh which had good social audits, had much less leakage. A third drawback is due to biometric requirements. The thumbprint or retina reader might not work, or failure of electricity or the machine and then the worker is denied wages. Even if there is 2 percent error rate, it could result in 10 or 20 million workers being denied.  This is a serious lapse and needs some fallback measures in case biometric does not work. 

Despite controls and biometric tools, there are still alleged leakages of funds that include methods like phantom musters of workers which help in siphoning out money

A fourth drawback and a recent worrying trend is the delay in payments. Since these are daily wage workers, any delay beyond one or two weeks in payment can be very distressing. Recent data as per government sources, shows an aggregate of 975 crore rupees in payments has been seriously delayed.

There are many features of NREGS that can be tweaked and reformed to make it even more effective. It is different from Universal Basic Income (UBI) which is unconditional money transfer and was introduced as a concept in the Economic Survey of 2017. By contrast NREGS is for self-selected individuals and has a requirement of hard manual labour. Presumably this filters out the fake and fraudulent claimants, if the system works properly.  One measure of success of NREGS is that there is often a demand for an urban equivalent too. Many State governments have considered introducing an urban employment guarantee scheme too.  

 NREGA was the culmination of public works programs, experiments and pilot projects which started as early as the 1960’s, with some degree of success. Maharashtra’s Employment Guarantee Scheme was launched in 1973 with the backdrop of a severe multi-year drought. It was financed by the State itself by imposing a profession tax on those employed in cities. It ran well and was an inspiration to the national law. 

Even if there is 2 percent error rate, it could result in 10 or 20 million workers being denied.  This is a serious lapse and needs some fallback measures in case biometric does not work

Until the time that India has a full-fledged formal unemployment insurance with extensive registration and tracking of the employed and the unemployed workers, and a payroll tax collected from employers to pay for this, a scheme like NREGS will be essential.  The additional impact of free foodgrains (5 kilo per person per month) and various direct benefit transfer schemes like PM Kisan or the Ladki Bahin Yojana, is such that NREGS need will decline somewhat. 

Not to forget that NREGS due to its work requirement creates durable rural assets which also add to productivity and public welfare. It also acts as an indirect vehicle for women’s empowerment. Hence wishing NREGA the best on its twentieth anniversary and hope it becomes more effective in the coming years. It is a role model for the whole world.