The National Rural Employment Guarantee Scheme

In a land where reportedly every generalization is trivially true, one generalization holds non-trivially and with overwhelming force. It is this: Indian governments are pro-poor. Every policy that any government ever espouses, fundamentally it always is pro-poor, irrespective of any minor variations such as pro-market or pro-planning or pro-industrialization or pro-globalization or pro-self sufficiency or whathaveyou.

My claim is that this pro-poor policy is not mere rhetoric. The policy works and how. I argue that all other policies have not yielded their expected results but the pro-poor policies have delivered as could be reasonably expected.

Pro-industrialization policies are expected to lead to an increase in industrialization. If India ever had such policies, they have had only marginal success because India is arguably not an industrial economy. Pro-poor policies are expected to promote the number of the poor, and there has been a monotonic increase in the number of poor in India.

The percentage of people below the poverty line is estimated to be around 25. That is, India has about 250 million people who are so unimaginably poor that they can’t cross the poverty line that is set way below what can be considered necessary for a human existence. Around 33 million were added to that role in 2001-02 alone For comparison, that is more than the entire population of Canada in 2001 (30 million).

Let’s put the number of the abjectly poor in perspective. Consider the number of people below the poverty line at the time of India’s independence. We had about 350 million people then. Assuming that 50 percent of them were below the poverty line then, there were 175 million abjectly poor people then. Now, about 57 years later, we have 250 million abjectly poor people. There has been an increase of 75 million in the ranks of the abjectly poor in the nearly six decades of pro-poor policies..

India’s pro-poor policies have succeeded in increasing the number of poor in the past and while past performance is not a guarantee of future results, the most probable outcome of current pro-poor policies can be expected to lead to increase in the number of the poor. The “Employment Guarantee Scheme” (introduced by the National Rural Employment Guarantee Bill) is pro-poor and the result will be as before.

National Rural Employment Guarantee Scheme (NREGS)

It promises Rs 60 per day for 100 days of employment a year to one member of every rural unemployed family. The Central government funds this scheme, with the State expected to contribute 10 percent of the cost. The cost in the first year alone is expected to be around Rs 15000 crores (or approximately $3.3 billion.)

The NEGS is not novel. Maharashtra has had an employment guarantee scheme for decades. According to Sharad Joshi, it “has produced few permanent assets. And the EGS in Maharashtra is synonymous with corruption. Government officials concoct false registers of attendance.”

Corruption is not unexpected when money is involved and the transaction is between officials who have the power and control over the money, and the poor unemployed labor who would be willing to take only a share of whatever is due to him or her. It has been variously estimated that only about 25 percent of any relief money actually reaches the intended beneficiary. Politicians and bureaucrats steal the majority of funds.

As a matter of equity and fairness, the rural poor do need some kind of safety net. The design of exact mechanism of a safety net is not easy considering the scope of the problem. But a number of questions that arise in connection of the NREGS and needs to be investigated. Even if the NREGS is not beset with corruption and fraud, is it the best mechanism?

Is the scheme consistent with the reforms required in the economy? Will the secondary effects drown out whatever primary benefits that accrue to the rural people?

The basic objection I have to the scheme is that is in effect it is a purely income redistribute scheme. A purely redistributive scheme is not objectionable in and of itself provided there is sufficient production but the production suffers from mal-distribution. However, the basic fact is that the production itself is insufficient. So in this case the all effort should be made to increase production and simultaneously seek a more equitable distribution.

The money spent on the NREGS has an opportunity cost. What is lost is the government’s ability to fund production enhancing projects. Suppose the money was spent for a massive drive to provide primary education and health services to rural areas coupled with a reduced family size drive. Or it was used to improve the infrastructure of the country such as building a modern rail transportation system. Any of a large number of public works projects would generate large employment opportunities and lead to capacity building and thus to an increase in the total national income. In this case, it would not be just an “employment generation” but “income generation”.

The problem is that the focus of the proposal is flawed. It focuses on employment instead of focusing on increasing incomes. The distinction is important. Income, to an individual, is a share of the total production that the economy produces. By focusing on the employment and not on the production, the scheme merely redistributes the proceeds of a limited production.

In summary, the NREGS will have the expected effect of deeping poverty and enriching the bureaucratic and political intermediaries. That the Left support this misguided scheme should have been sufficient proof of its effects. But I guess we will have to go through with this despiriting exercise once again before we learn the lesson that increasing employment is not the same as increasing production.

[Also see the importance of producing stuff and “Sir, won’t you buy this employment guarantee act?“]

Author: Atanu Dey


32 thoughts on “The National Rural Employment Guarantee Scheme”

  1. Have been shedding tears on this subject for a while now.

    The money spent on the NREGS has an opportunity cost. What is lost is the government’s ability to fund production enhancing projects.

    And today there is talk about raising petrol prices even more to help fund this excresence.

    Some other points here


  2. It’s the leftist idiots who rule the roost- how can you hold responsible those people who haven’t been elected and still find themselves in Rajya Sabha- Surjeets and Karats.
    Basically its a matter of playing to the gallery. Any sane thinking individual would balk at the huge investments going down the drain. However if we had politicians who actually applied their minds- they wouldn’t be there in the first case in the position of power.

    Can you claim Atanu, that you would find yourself an “honourable employment” with Government of India in New Delhi? If you put your knowledge to practise,the same people would resent their edifices crumbling down- the money that lines their pockets in the name of “pro poor” as you just decribed.

    I am indeed turning cynical about these bunch of idiots who are ruling our destinies- hard earned monies down the drains. That has been the tragedy of this nation- none the wiser for the majority of the electorate that votes the same buggers with unfailing regularity in power every time.


  3. Hi Atanu,

    Its a very good analysis. The NREG bill is going to cost around Rs. 40,000 crore annually to the exchequer. The bill has been framed by a Belgian economist jean dreaze from the delhi school of economics and currently member of the National advisory council {NAC}. This council has been staffed with communist ngo’s and one can be sure that thier discredited ideas can only destitute the nation. These billions should have gone into building cities and infrastructure but thanks to the communists, its been siphoned off to waste and decay.


  4. Atanu, wonderfully written, as usual.

    I agree with you that, when money is simply doled out without “producing any stuff”, the intended benefits will not percolate down. As Rajiv Gandhi stated once, only 13 paise reached the ultimate beneficiary, for every rupee that the Govt. shelled out.

    A better idea would be, as you have suggested, to invest in infrastructure. I know of a power company which put up a 18 MW plant based on biomass produced from juliflora, a plant which literally grows in the wild. The villagers were enthused that someone was willing to pay them a decent amount for collecting shrubs and twigs that were in abundance in that area. The power company could produce much-needed, eco-friendly, Co2-neutral power at a very low cost and supply it to the grid. As a logical extension of the idea, if the power could be consumed locally ( avoiding the T&D losses) and some food-processing or other rurally-relevant industry could flourish, you would have a winning formula of rural employment, power generation, rural industry and a genuine improvement in the lifestyle of the people, motivating them to stay put and avoid the migration to urban areas

    These are the models which we must showcase and build on.


  5. Hi Atanu,
    It’s another good article. Please keep on writing. I agree that most of the 3.3 billion Rupees will go down the drain every year. The money could have been spent instead on primary education and primary health care. I think that these two areas are even more important than building infrastructure for the cities.

    [I think that Sukumar means “dollars” above instead of “rupees.” — Atanu]


  6. there are currently 1.37 crore households that are below poverty line and if there was 5 people in every house and if one could be employed in every family then the govt would need 1,37,000 crores how is it possible or is it another political stunt ,in the age of corruption how is this goin to be delivered


  7. Suggestions for the NREG.

    1.Set up a separate monitoring body for
    the NREG. There should be a minister and a district level officer in charge.
    2.Identify list of assets to be created. These will need to be identified at the village level and consolidated and aggregated at the national leve
    3. Clear asset creation targets need to be identified
    4. Monitoring mechanism to be established.
    5. Loaning of resourses to other programs such as NHDP and Bharat Nirman to be enabled.
    6.The process including target setting, monitoring and beneficiary database to be computerised



  8. Dear Atanu

    How about compelling the GoI to implement the NREGS in sync with the National ID Project, nicknamed NISHAN by the GoI? NISHAN is intended to be a citizen friendly initiative to introduce National ID cards utilizing biometrics…

    The technology to stop the pilfering and corruption exists. Only thing that the GoI has to do is enable technology to be implemented by organizations who understand it – rather than continue with the GoI’ monopolistic stand on executing projects that (as you and everybody has pointed out) have failed and will continue to fail to deliver.


    V R Chopra


  9. I totally agree with Viraj Chopra. National id (biometric enabled) and captured in passports bank accounts etc and surveilance cameras will solve india’s problems.


  10. i guess every such scheme the government thinks of is going to be fraught with the risks of corruption and difficulty in implementation. nonetheless, this is a very bright scheme because it guarantees money for work, not for free like every other project till now did. the message it sends out itself is very important – nothing comes for free. indians have got used to getting everything for free or subsidised, and that should change in the first place.


  11. i am doing a research on national employment guarantee scheme as one of the models on public works programme – would therefore like to be upddated with info on the subject.


  12. I think that this scheme should be applied with more decentralisation, ofcourse this has been done upto some level. More incentives should be provided to the people who are implementing this program in a effective manner and before starting this scheme in a certain region work should be well planned so that money is not wasted.
    Awareness to this program should be increased. In all type of Government Organization Corruption is involved automatically but this can be reduced by implementing some of the properties of the private sector into Govt schemes. As legal proceedings for involvement into corruption should be applied strictly.


  13. Hi Atanu
    Your writing has showd me other side of the employement guarantee scheme.
    Excellent writing, Inspired me very much

    I had read that in starting phase, the scheme will start in 200 district. I would like to know the names of these districts. Is there any NGO working in this field?
    I would be grateful to you if you respond as early as

    Looking forward for your responce

    Thank You
    Nagesh (


  14. I believe we should not be so critical of the Goverment for doing something which if it acheives its intended purpose will result in a transformation of Rural India like never before. Stop criticising Government like members of opposition parties join hands with Government to make this scheme a success. Please note I am only an ordinary citizen of our country and I am no way connected to the Congree Party, Communist Party or any party in the UPA. I think it is time for responsible citizens to join hands and prevent corruption instead of wasting time talking about it.

    Atanu’s response: The problem is the “if” you have in your first sentence. If it does not achieve — and it will not achieve — its intended purpose, then we would have wasted a lot of resources which we cannot afford. It will leave us poorer and when that happens, the poor suffer more than the rich who wasted the resources in the first place.


  15. I support Prem Anand’s statement. I feel, the scheme is a very inspiring one. Everyone needs to be supporting it to be able to obtain full benefit out of it. Indeed a beginning has been made and the very support from every quarter will make it all the more successful. Nothing can be changed overnight. Every step will over a period of time gather to show a huge impact. All of us support this scheme. I think we need to be more critical of cynics like Atanu more than anything else.


  16. NREGS, if it can come up with complete package of change management, then can be a great leap for human resources development and knowledge revolution in India.

    Production oriented view is one sided.


  17. Dear Attanu

    This is my second comment on the subject – earlier I suggested the National ID Card to complement the NREGS. Have read some other comments about the wastage, the leftists, blaming politicians etc..

    The point that we must never forget is that thousands of people across the country are destitute and NREGS for them is like IV fluid to a patient – just look at the beggars at traffic junctions..

    Economic growth has benefitted hundreds like me but the misery of unfortunate citizens is shameful.

    This state cannot carry on otherwise we endanger our own well-being…


  18. Hi,I Googled for information on NREGS and came across your writings-and the interesting comments.I enjoyed reading them.I am seeking for few clarifications/informations regarding NREGS.My state, Mizoram, currently has two districts wherein the Scheme is being implemented since August,2006.However, till date the Govt. hav’nt framed any NREGRules for the state.I learnt that the Scheme is being handled by different agencies like the DRDA,BDO’s the state.Is this in contradiction to the NREGA?My information tells me that the Scheme is to be implemented through institutional mechanisms like Dist. Prog. Coordiantor,Prog. Officers etc.Further,is there any budgetary allocation for maintenance of these institutional functionaries (their salaries,for procurement of stationaries etc.)like the Prog. Officers from the amount alloted for the Scheme?(I learnt that 2per cent of the sanctioned amount is reserved for such maintenance!)What amount of discreation does the respective state governments have in the implementation of the Scheme?I’d appreciate it if you can kindly clarify these doubts..


  19. I am doing a research on the Awareness of the tribals about the National Rural Employment Guarantee Scheme in Rajpur Block of Surguja District in Chhattisgarh so need more information on this.


  20. I think NREGA is a step in the right direction but it’s way of functioning is wrong. If I am correct, one of the main points about the act is that the work done will be manual labour which can be easily replaced by machines. Thus, what we are really doing is being inefficient at the cost of providing employment to the poor. What we should be doing is use that money to train people in skilled labor so that people can actually get jobs without government’s help.


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