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Article in The Financial Express
Authored by Dr.Jayaprakash Narayan

National Coordinator of
VOTEINDIA movement

Good intentions versus sensible action
August 26, 2005

How to maximise gains from the employment guarantee Bill and accelerate economic growth

Few public policy debates have been as ferocious and polarising as the one on the National Rural Employment Guarantee Bill (NREGB), which was introduced in Parliament last week.
Perpetual hunger and starvation, mass poverty, drudgery, preventable sickness etc. are blots on our civilisation and economy. While rapid economic growth is both necessary and welcome, islands of prosperity and wealth creation in the midst of drudgery and deprivation are morally reprehensible and economically and socially unsustainable. Therefore, rapid growth cannot be the sole answer to the challenge of poverty. Massive state interventions to combat poverty are vital.

The debate should, therefore, focus on the best ways of reducing the burden of poverty. The supporters of the Bill have argued that employment guarantee is the most direct and effective assault on pov-erty. As the programme envisages manual labour, employment seekers are self-selecting and poor. As 90% funds come from the Union, work can be provided to all those who seek it. The wages earned over 100 days at Rs 60 a day will at least provide basic sustenance during seasonal unemployment. With panchayats actively involved, there will be community acc-ountability. If we assume 40 million rural households below the poverty line, and 40% non-wage component of rural works under the programme , the total cost of the guarantee would be about Rs 40,000 crore per annum. The proponents argue that while this is a large sum, it is only about 1.3% of GDP (at current prices), and is worth investing to reduce poverty.

The sceptics argue, with Union government tax revenues in the range of 10% of GDP, 1.3% is a lot, and we should make sure the money is well spent. In this day and age, earthwork, removing boulders and filling pits cannot constitute gainful employment. The real causes of poverty lie in inadequate skills, denying opportunities to participate in wealth creation in a modern economy, and poor health access and the crushing burden of costs of ill health. When resources are limited, we must get the best value for every rupee spent. A lot more investment in education and hea-lth care is needed. If the bulk of the reso-urces go towards employment guarantee in the form of drudgerous work, it may divert scarce resources from the truly empowering sectors. And, of course, there is real danger of bulk of the funds being misappropriated by ‘rent-seekers.’

Both sides have strong arguments. But, for a reasoned public debate and a productive outcome, the intentions of both sides should be respected. Now that the Bill in the current form will certainly be the law soon, we should focus on creative and meaningful responses to promote maximum public good. Who knows, the employment guarantee may well have positive unanticipated consequences, if genuinely implemented without leakages. Witness the impact of the mid-day meal scheme on female literacy, population stabilisation, skills and investment in Tamil Nadu. And the positive fallout of subsidised rice on public awareness, fertility rates and poverty reduction in Andhra Pradesh. This was possible because both schemes were well implemented, and the parties in power regarded these as their political lifelines.

If the employment guarantee law is here to stay, what can be done to maximise its gains and accelerate economic growth at the same time? First, the programme must substantially be dove- tailed with soil conservation, watershed development, and drought-proofing. Rural poverty, degraded soils, drought, and low productivity go together. All other beneficiary-oriented rural development schemes should be scrapped and employment guarantee works must be almost wholly land-based. We can review the impact of the programme on land productivity and poverty after five years and then chalk out a fresh course of action.

The fiscal challenge the programme poses is real. The past few years have witnessed low inflation and moderately high growth rates. With the rising burden of global oil prices, if retail prices are not enhanced, the oil companies will lose about Rs 40,000 crore. This, coupled with employment guarantee allocations, will seriously undermine our fiscal health, fueling inflation. If fuel prices are raised, it will add to inflationary pressures, hurting the poor disproportionately. Fiscal prudence and low inflation must be recognised as important anti-poverty and pro-poor measures. Therefore, everything possible should be done to eliminate unnecessary or unviable subsidies.

Finally, real reduction of poverty in the long-term will be possible only by providing good quality school education (not mere enrolment and retention in under-staffed schools), improving skills to enable productive participation in wealth creation and creating a decent, accessible and accountable healthcare system. Employment guarantee is merely a palliative. The real cure lies in skills, productivity and good health. Any deviation of focus from these areas will cause immense harm to the poor, and to the economy.

We must remember that good intentions are no substitute to sensible action. The challenge lies in maintaining the required balance in our policies and their implementation.We would do well to recognise that there is no single silver bullet to combat poverty. We need to evolve a package of practices and policies to enhance productivity and skills, reduce disease burden, and improve economic opportunities. The current euphoria and cynicism are both unwarranted. Healthy scepticism, a multi-pronged strategy to help the poor help themselves, a capacity to rise above dogmas and the ability to apply mid-course corrections based on evidence and logic are all vital in the next few years.



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