India with its developing economy and world's second largest population, is characterized by a huge labour market. The demand of labour never matched with the supply of labour in India for a number of reasons like lack of skills, illiteracy, economic recessions and lack of governmental policies. As a result, considerable percentage of the population were unemployed and are under below poverty line (BPL). The wages offered to unskilled labours are not adequate for a decent household living. In order to tackle the situations like these, the Indian government has implemented the National Rural Employment Guarantee Act (NREGA) in the recent past, to complement the income of the poor by providing them employment for certain number of labour days in a year.
The National Rural Employment Guarantee Act (NREGA), enacted by the Government of India in 2005, is one of the most prominent anti-poverty scheme launched anywhere in the world. This act gives a mandates that one hundred days of employment in every year should be given to adult members of any rural household willing to do public work. Around one-third of the work force is women. Though the law was initially called as National Rural Employment Guarantee Act (NREGA), it was renamed on 2 October 2009 as Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA).
Under the MGNREGA, the cost of the payment of wages, three-fourth of material cost and some portion of administrative cost is funded by the central government whereas the cost of unemployment allowance, one-fourth of material cost and administrative cost of State council is taken care by the respective state government.
NREGA
Under NREGA program, employment of 100 days in a financial year is guaranteed to people who volunteer themselves. The Panchayat or the concerned NREGA officer accepts the valid application and issues the receipt of the application.
The employment is provided within a radius of 5 km. If it is above 5 km, extra wage of 10 percent to meet additional transportation and living expenses is paid. Within 15 days of application, employment opportunity has to be provided. Otherwise the state has to provide the people with unemployment allowance. The worksite should have the basic facilities such as drinking water and shade. The wages has to be paid on a weekly basis and cannot exceed beyond a fortnight in any case. No contractors and machinery is allowed.
NREGA has two advantages off rural development and employment. The NREGA scheme include works targeted towards rural development activities like water conservation and harvesting, rural road connection, flood control measures ,construction and repair of ponds, dams and afforestation. Construction of new tanks and ponds, small check dams and percolation tanks are also taken care off in this scheme. The employees are given unskilled manual labour such as land leveling, digging and tree plantation.
Financial strategies like opening banks and ATM are developed to disburse money to beneficiaries in an efficient manner, thus ensuring the direct payment of wages to the labourers. This enhances security and livelihood of the rural people and also provides more disposable income which helps them to be more self-reliant. Over one third people enrolled are women. This has resulted in multiplier effects in savings and financial security. Government also has instituted (PIN) Professional Institutional Network which steadily intervenes in its functioning to make it more effective and efficient. This has started showing results in rural India by reduction in poverty.
NREGA creates green jobs. Jobs that will help to check the rising temperature, depleting water table and deforestation. NREGA beneficiaries will also be covered under the Rashtriya Swasthya Bima Yojana(insurance cover package) that was given to provide health insurance cover to below poverty line workers and their families.
Economic Analysis of NREGA
From the time of its being, the NREGA has made a significant difference to the lives of the people below poverty line: wages are rising in rural areas, economic conditions are slowly increasing, productive rural assets are being created, the disposable income of these poor people are increasing and the power equations are changing too. NREGA has become a valued source of local employment for the labourers and acts as a triple bonus for them: apart from improving the rural income, it also enables to stabilize the agricultural production, spend more time with their families and reduces the problems of excessive population pressures on Indian cities. NREGA also offers a unique employment opportunity for rural women, wherein they earn the same as men.
There has been a substantial amount allocated for this project in our financial budget. The allocation for the NREGA has been reduced from Rs 40,000 crore in 2011-2012 to Rs 33,000 crore in the Budget presented for 2012-2013.However, the Finance Minister says that there is no dearth of funds with an amount of Rs 42,000 crore which includes an opening balance of Rs 6,000 crore lying with the states and the states' contribution of Rs 3,000 crore available for the programme. So in total about Rs 42,000 crores are available for this project.
450
Income(Y)
Production (y), Demand(Z)
Z= (C0 + I+G-C1T)+C1Y
Z= (C0 + I+G1-C1T)+C1Y
G1>G
y1
Z1
Z2
y2
Market Equilibrium
When Government increases its budget from G to G1, the spending also increases which is given by ,
C0 + I + G - C1T ïƒ C0 + I + G1 - C1T
The increase in spending will result in increase of income as well as demand. Since there is an increase in the autonomous spending, there will be an upward shift in the demand curve.
At the same level of income Y1, the demand from Z1 raises to Z2.
Now, since the demand is increased, the companies will produce more, and therefore they will make more investments, invest more capital and employs more labor. Thus there is further increase in salary to Y2 and this cycle continues till the point where for the same income level the present demand is equal to the previous demand. In other words the equilibrium point is attained at the point where the demand curve meets the 45 degree line.
NREGA also increases the purchasing power among workers. When those working on NREGA sites spend this disposable income, they create demand for other products. These demand for commodities in turn will increase the demand for the capital, raw materials and workers required for the manufacturing the products. This extra demand will stimulates production, employment and demand in other sectors as well resulting in a Multiplier effect.
NREGA and short term Inflation
NREGA will cause inflation in the short run because of two major reasons. The first reason is due to the increase in wage level of the rural workers, causing demand to grow and the second reason is, it makes very difficult to practice agriculture in the rural areas because of the lesser yield to the farmers than NREGA employees resulting in many farmers quitting agriculture and joining NREGA and the uncertainty in our rainfall which will put pressure on supply side.
NREGA causes the wage levels of our rural economy to rise across the country, and hence the marginal propensity to consume and the disposable income of the weaker section of society benefitting from NREGA increases considerably, resulting in an increase in the demand for food items and other products. This causes the inflation to grow because the supply level will remain constant and hence it increases the price level of food items.
Also, in the agricultural sector, shortage of farm laborers is created by NREGA because of the higher level wages offered to them. This causes supply side difficulties as there aren't enough hands at the time of harvesting season when there is already high demand of laborers. This further increases price level. To counter this problem, NREGA jobs of 100 days should be offered in lean periods, when there is no harvesting season.
Short term inflation and Phillips curve
Phillips, Samulson and Sollow discovered around the year 1960 that a negative correlation exists between the unemployment rate and the inflation.
Unemployment rate
Inflation Rate
According to them, lower unemployment leads to a higher nominal wage. In order to keep up with the higher nominal wage, firms will increase their prices of their products. Since the price level of the products increases, the workers will demand for higher nominal wages , the next time the wages are set for them. This increase in the nominal wage leads to further increase the prices of the products. This again will affect the wages of the employees. The race between prices and wages results in a steady wage and price inflation.
Also the demand for more goods will increase the general price level of all the products.
NREGA and long term Inflation
The inflation caused by NREGA is only short run, because in the long run, the assets such as construction of wells and dams for irrigation purpose, leveling of roads, water conservation and harvesting created by the NREGA activities improves rural infrastructure and hence increases the supply, thus causing inflation to decrease.
Inclusive growth
NREGA has played a critical role in providing a measure of inclusive growth to India. It has given its people a work-right without compromising on their economic and democratic rights and entitlements. It also, to establishes the dignity of labour to its people and creates infrastructure and assets, and build the human resource base of our country. This urged the power elite to recognise the people's right to fight endemic hunger and poverty with dignity. It also made them to realize that their labour will be the foundation for infrastructure and economic growth. These improvements must be to strengthen their economic power, not to divert from the basic tenets. In the current economic slowdown scenario, there is enough evidence that these kind of initiatives can work to help reduce the slowdown.
NREGA and Financial Inclusion
Financial inclusion or inclusive financing is the delivery of financial services, at affordable costs, to sections of disadvantaged and low income segments of society.
There has been lot of criticisms about corruption in the funds allocated for NREGA. Following the reports of corruption, the Government of India brought financial inclusion in NREGA to ensure that all the employees of NREGA receive their wages directly without any leakages. Wage payments to the NREGA employees have been initiated through financial inclusion, with the condition that all wage payments should be made through banks or post offices. All the employees of NREGA are requested to open a bank account in order to receive their wages directly. It also advises the workers to obtain insurance under Jan Shri Bima Yojana.
Roadblocks of Financial Inclusion in NREGA
Though the financial inclusion in NREGA is hailed as foolproof and cost-effective solution to reduce leakages and promotes greater transparency, several complications and roadblocks with the new system are now becoming apparent.
Delays in wage payments has been reported in several states including Jharkhand, West Bengal, Chhattisgarh, Rajasthan, Madhya Pradesh, Uttar Pradesh and West Bengal .This is considered to be one of the most serious problems with the system of bank and post office payments. This is due to the fact that in rural areas the coverage of banks and post offices in is very low and as a consequence workers especially in remote parts of the country find it very difficult to travel long distances in order to collect their wages which causes the delays in payments of their wages.
Another important reason for the severe delays encountered in the disbursement of wages is that the local rural banks are incapable of handling huge volumes of accounts due to the shortage of staff and technological advances. These rural banks still manages the accounts manually through log journals.
Transparency and Accountability
NREGA tries to weave transparency and accountability into daily interaction of people with government. Transparency and accountability is one of the biggest contribution of the NREGA to the entire Indian governance system. The NREGA also tries to connect the Right To Information (RTI) Act with our legal and governance system. The entire expenditure on NREGA ie., 94 per cent of the total amount, is mandated to be put on the NREGA website, with every detailed transaction using the Management Information System (MIS) of NREGA. The website reveals the details of the number of days of work provided and payments made in the year to every Job Card holder in the Panchayat.
