Does a country need a policy for poverty reduction or is a policy for growth and efficiency sufficient?  Certainly, it is difficult to find any significant instance of a capitalist democracy that has managed without a safety net for the unemployed, the elderly or the disabled.  India cannot expect to escape this compulsion.  If anything, as a society that is deeply divided, our need for the visible involvement of the state in welfare provision is even more of political necessity.

The current controversy about the National Rural Employment Guarantee Scheme revolves differing perceptions of how best to do this.  On the one side, we have those who believe that the greatest impact on levels of poverty has come from more rapid growth and anything that detracts from the pursuit of efficient growth is welfare reducing.  On the other side are those who believe that the particular policies directed at stimulating growth and investment have worsened the inter-personal and inter-regional income distribution, at least partly because they have failed to generate work opportunities on the scale required by a growing workforce.

The Employment Guarantee Scheme addresses this by promising any rural adult upto100 days of employment at the going minimum wage.  One line of criticism is that the survey data do not show high levels of unemployment in rural India, in fact just about 1 %, and that the real problem of poverty is that of the working poor,  (See the series of vigorous articles by Surjit Bhalla in this paper in recent weeks).  Supporters of the scheme correctly point out that the EGS does not offer full-time work and is designed to address underemployment, the lack of work in some seasons, and that this person day unemployment rate is much higher.

Both sets of argument assume that the primary impact of the scheme will be through the employment actually provided. However, the experience of Maharashtra shows that the scheme also helps to underwrite the minimum wage in the normal economic activities in the region.  As work is available as of right at the minimum wage, employers are obliged to pay at least that wage to secure labour. Thus the case for the scheme is not just the actual work provided but also the change it brings about in the bargaining capacity of labour in the local labour market.

Arithmetical calculations about the extent of unemployment or under-employment, the budgetary costs if all the underemployed were to present themselves for work, the macro impact and so on are really beside the point.  For instance, the Maharashtra experience would suggest a level of total expenditure that is barely one-third of the Rs. 40.000 crores projected by Jean Dreze, the most vigorous advocate of the scheme in the NAC and in public discussions. (See Dorab Sopariwala and Venkat Chary’s article in the Business Standard of 5 January 2005). This is also why it is a little optimistic to see it as a significant demand boost for growth.

The EGS has to be seen as a labour market intervention rather than as an income generating welfare scheme.  Think of it as workfare rather than as welfare.  The beneficiaries are self-selecting.  Only those who are truly in need of work will offer their labour.  There may be few of these in prosperous irrigated multi-crop areas and many more in single crop dry areas.  Hence the geographical impact is also self-selecting.  That is why it would be best to run it as a universal scheme and avoid the difficult politics of picking the areas where it would apply.

The works that will be taken up under the scheme provide an opportunity to bring together two strands in redistributive public expenditures.  One strand focuses on area development at the local level.  It involves activities like rural roads, watershed development, land and water management, improvement of habitations and the living environment and so on.  The other strand delivers subsidies and support to individual households.  These two strands have never come together as well as they should.  We cannot protect the rural environment without taking into account the livelihood needs of the poor.  Equally, we cannot secure sustainable improvements in income, employment and welfare without raising the productivity and quality of the resources and the environment on which the poor depend.  The EGS provides us with an opportunity for doing this, as it is perhaps the first area-oriented anti-poverty scheme.

Critics of the scheme have questioned our ability to implement such schemes that deliver benefits to millions of beneficiaries, operate in areas remote from informed public scrutiny, and rely on a bureaucratic and political process that is deeply corrupt and prone to patronage politics.  Misdirection of benefits, padded muster roles, fictitious public works, haphazard and distorted project selection are but some of the problems identified in evaluations of similar schemes. 

The EGS scheme can avoid the rake-offs that beset schemes that require public authorities to identify beneficiaries.  In the EGS the beneficiaries select themselves and anybody who offers himself for work should be eligible subject only to basic conditions related to age and health.  But cheating by the padding of muster rolls, false claims about work done and mala fide project selection are still possible.  Some of the safeguards are known – explicit norms relating the employment claimed to have been provided with the work done, inspections and audit of the works, master plans to provide a framework for project selection, local involvement.  They have been a part of earlier schemes and the evidence suggests that these checks have not prevented waste and corruption.

Procedural and bureaucratic safeguards are useful but are not enough.  We need to move away from large centralized bureaucracies that treat rural folk as clients to a more decentralized control over the programme anchored in the panchayat raj institutions.  The engineers and finance officers must become servants not masters of these local bodies.  Full information on the works undertaken numbers employed should be available to the local people who can judge the veracity of the reports.  Project selection should be more structured and left to local bodies.  Patronage politics will not disappear, but at least it will be more transparent.  If this works the most lasting benefit of the scheme may be the change in bureaucratic culture at the local level.

We have tried many different schemes in the past and the EGS may simply become yet another addition to a battery well-intentioned but disappointing centrally sponsored schemes.  Our anti-poverty strategy needs to be simplified and made more coherent.  Policy planning and implementation can work within a three-cornered framework.  The first corner would be a systematic analysis of the distributive impact of mainstream public policies.  The Finance Minister has asked ministries to work out the gender impact of their proposals.  He must do the same for the poverty impact.  The second corner would be an amalgamation of schemes like EGS and IRDP into a single workfare type scheme implemented through local bodies.  The third corner would be a social welfare structure that would provide a unified service to individuals and families in need for old-age pensions, disability assistance, scholarships to SC/ST students and so on.

The debate on the EGS must move away from back-of-the-envelope arithmetic and polemics to a more serious discussion of the role of the state in redistributive activities.  India, like other capitalist democracies, will have to establish a mechanism for welfare provision and decentralized democracy. The EGS should be seen as an opportunity to work towards this end.