Entitling 40 million rural workers

The policy agenda outlined in the National Common Minimum Programme of the UPA government pledges the following regarding employment: "The UPA government will immediately enact a National Employment Guarantee Act. This will provide a legal guarantee for at least 100 days of employment to begin with on asset-creating public works programmes every year at minimum wages for at least one able-bodied person in every rural, urban poor and lower middle-class household."

As a step in that direction, the National Advisory Council recently prepared a draft National Rural Employment Guarantee Act (NREGA). This is likely to be tabled in Parliament in November. The draft Act, in a nutshell, provides guaranteed employment at the statutory minimum wage to at least one adult per rural household who volunteers to do casual manual labour in rural areas. If the applicant is not provided with employment within 15 days of applying, the Act entitles him/her to a daily employment allowance. In a separate note to the government, the NAC had said that "it may be appropriate for it to be handled by the Ministry of Rural Development or the Ministry of Panchayati Raj." (See update at the end of this article)

Background

The Indian Constitution refers to the Right to Work under the "Directive Principles of State Policy." Article 39 urges the State to ensure that "citizens, men and women equally, have the right to an adequate means to livelihood." Further, Article 41 stresses that "the State, shall within the limits of its economic capacity and development, make effective provision for securing Right to Work…" Though the Indian government has created labour-intensive rural works programmes, these are not based on the Right to Work. They are just additional employment opportunities provided by the State, as and when possible.

So far, the only noteworthy attempt to make the Right to Work a reality is Maharashtra's "Employment Guarantee Scheme," which was the outcome of a struggle for protection from poverty and unemployment, resulting especially from the massive drought of 1970-73. Maharashtra's programme entitles all adult to work within a fortnight of registration at any block level office; failure to provide employment creates the liability towards payment of unemployment allowance. Numerous studies indicate that Maharashtra's EGS had an impressive impact on the employment as compared to other anti-poverty programmes in India. It is claimed that EGS eliminated 7% of the unemployment in the state in 1987-88.

Over the years, a strong case has been building up for the introduction of a nation-wide legally binding employment guarantee programme, taking cue from Maharashtra's experiences. The demand for the implementation of the Right to Work--including an Employment Guarantee Act at the national level and in other states-- has been on the rise. The draft National Rural Employment Guarantee Act 2004 prepared by the National Advisory Council is the first attempt to bring national legislative sanction to these ideals.

This proposed Act assumes tremendous significance. One, its implementation will become the first national safeguard of the Right to Work. Two, a well-designed Employment Guarantee Programme (EGP) could have a major impact on rural poverty in India within a few years. Three, in a country where labour power is the only economic asset for millions of people, gainful employment becomes the only channel for the fulfillment of the other basic rights -- the right to life, the right to food, and the right to education.

1. Every household in rural India will have a right to at least 100 days of guaranteed employment every year for at least one adult member. The employment will be in the form of casual manual labour at the statutory minimum wage, and the wages shall be paid within 7 days of the week during which work was done.

2. The Act extends to all rural areas of India, including Fifth and Sixth Schedule areas, except the State of Jammu and Kashmir. It will take effect in all rural areas within five years of enactment. Starting from districts with high levels of poverty, gradual extension to the whole of India will happen during the initial period of five years.

3. The Central Government is open to extend the entitlement to beyond 100 days, or to every adult, or to urban areas in some or all parts of India.

4. For giving effect to the employment guarantee, each State Government shall prepare an Employment Guarantee Programme within six months of enactment. The Programme’s main features include:

1. Only productive works that are based on economic, social, and environmental benefits; contribute to social equity, and have the ability to create permanent assets will be taken up under the Programme.
2. The works shall be in the rural areas.
3. As far as possible, the Programme may also provide for skills training of unskilled labourers.
4. When wages are directly linked with the quantity of work, they shall be paid according to the schedule of rates fixed by the State Government. For unskilled labourers, this schedule shall be so fixed that seven hours of work shall fetch wages equal to the statutory minimum wages of agricultural labourers of that State at that time.

5. The State Government has the responsibility of providing employment within 15 days of application, and possibly within five kilometers radius of the village where the applicant is residing.

6. If no employment is provided within 15 days, the applicant is entitled to a daily unemployment allowance if that is his/her first application in the current fiscal year.

Cost of the NREGA

The NAC, not stopping short at drafting the Act alone, has prepared a note that shows that the cost of the employment guarantees may be as low as 1% of the GDP. The calculations assume that each person-day of employment generated will cost Rs. 100 (wages) at 2004-5 prices. This includes roughly Rs. 60 as wages and Rs.40 for the non-labour component including administrative costs. Then, 100 days per poor household on average is fixed as the benchmark for the initial extent of employment generation. Combining these two, it is estimated that the annual cost of a full-fledged Employment Guarantee Programme can be derived by multiplying the number of households below poverty line by Rs.10,000. The rural population below the poverty line as per Census 2001 estimates in 20 crores, which amounts to 4 crore households (5 per family). The cost of the Act's entitlement thus works out Rs.40,000 crores per year at 2004-5 prices or 1.3% of the GDP. (1 crore = 10 million)

These calculations are for a single-phase full implementation of the Act, in one go. However, to reduce the burden of funds needed initially, the draft Act provides for a phased implementation. The financial note assumes phased implementation over four years, starting from 2005-6. Accordingly, the total cost of the Programme with phased implementation rises from 0.5% of GDP in the first year (2005–6) to 1% of GDP in the last year of the inception phase (2008–9). This proportion itself is expected to fall as the number of households below poverty line decreases and the GDP increases.

Dr.Jean Dreze, member of the National Advisory Council, is now Visiting Professor at the G.B. Pant Social Science Institute, Allahabad. He has also taught at the London School of Economics and the Delhi School of Economics. He has made wide-ranging contributions to development economics and public economics, with special reference to India. He is co-author (with Amartya Sen) of Hunger and Public Action (Oxford University Press, 1989) and India: Development and Participation (OUP, 2002), and also one of the co-authors of the Public Report on Basic Education in India (OUP, 1999).

Drèze is also an active member of several civil society groups -- the Right to Food Campaign (India), the National Campaign for the People's Right to Information (India), and also the world-wide movement for peace and disarmament. In an exclusive interview with India Together, he elaborates on the draft National Rural Employment Generation Act, 2004. Excerpts:

How is an "employment guarantee programme" different from employment generation schemes such as the existing labour-intensive rural works programmes?

There is a world of difference between the two. Under existing schemes, people have no rights and therefore no bargaining power. By the same token, the administration is not accountable. This is one reason, among others, why the performance of these schemes is absolutely dismal.

The proposed Employment Guarantee Act gives people work entitlement as a matter of right, indeed a legal right enforceable in Court. This will give labourers bargaining power and help them to claim their due. It will make the administration accountable, because if employment is not provided, the unemployment allowance will have to be paid and local officials will have to answer for it.

There are other ways in which a legally binding guarantee can make a big difference. For instance, an Employment Guarantee Programme protected by law is likely to be more durable than an ad hoc scheme, and less vulnerable to being phased out in the event of a fiscal crisis. Maharashtra's Employment Guarantee Scheme has survived for nearly 30 years without change. In contrast, centrally-sponsored employment schemes such as Sampoorna Grameen Rozgar Yojana (SGRY) come and go every two or three years. Another important feature of the proposed employment guarantee is that it is more equitable than ad hoc employment schemes, because it is a universal right.

What would you rate as the important features of the draft NREGA?

Perhaps the most important feature is that it reflects a consultation process, involving many concerned citizens and organisations.

In terms of content, the draft Act has several important features: 1. It is a national Act with time-bound extension to the whole of India. 2. It is based on a simple and well-defined entitlement: employment within 15 days for anyone who is willing to do casual manual work at the legal minimum wage. 3. It includes a clear and enforceable provision for actual payment of unemployment allowance in the event where employment is not provided. 4. The draft Act attempts to consolidate the present trend towards decentralised planning and devolution of powers to Gram Panchayats and Gram Sabhas. 5. It includes extensive provisions for transparency and accountability at all levels. 6. Last but not least, the draft Act includes explicit penalties in the event of dereliction of duty on the part of responsible officers.

Can India really afford such an Employment Guarantee Programme?

Various estimates of the cost of an Employment Guarantee Programme have been proposed, ranging between Rs 20,000 crores and Rs 45,000 crores per year. In the note circulated at the National Advisory Council, where the Programme is gradually extended to the whole of India over a period of four years, starting from the poorest districts, the cost rises from 0.5% of GDP in the initial year to 1% of GDP in the fourth year. Is this is an exorbitant price to pay to protect the bulk of the rural population from hunger, insecurity and unemployment? Surely not.

This is not to deny that in the short term, bold initiatives would be required to finance an Employment Guarantee Act. One way forward is simply to tax the rich. They are the main beneficiaries of India's rapid economic growth - let them share with the less privileged. As the Finance Ministry's own recent studies and reports show, there are vast possibilities for broadening the tax net in India, reducing tax evasion, and raising the tax/GDP ratio. As things stand, India's tax/GDP ratio is very low in international perspective: about 15 per cent, compared with 37 per cent in OECD countries. The share of the social sectors in public expenditure is also quite low in India. The adoption of an Employment Guarantee Act is a good opportunity to correct these imbalances.

The emphasis on 'rural' employment appears to create a distinction between citizens based on where they live. What about urban citizens?

The Rural EGA doesn't preclude an Urban EGA, in fact the former is a step towards the latter. Besides, the Rural EGA itself will be of tremendous value to urban workers, because (a) some of them will be able to stay in their village and get work there instead of migrating to the cities, and (b) the reduction of rural-urban migration will lead to higher wages for those who stay in the urban areas.

Will the REGA create an unfunded mandate, where the Centre passes the legislation, but states are responsible for implementation without guaranteed access to the required funds? Is there any risk of that?

Actually it's the other way round. The REGA is going to be funded overwhelmingly if not totally by the Centre, and there is a risk that some states will use it to 'milk' the Centre. Quite likely the final version of the Act will include some safeguards against that.

The Rs.60 per day wage is less than the minimum wage in some states ...

The draft Act clearly states that statutory minimum wages have to be paid in all circumstances. We used Rs 60 per day as a benchmark figure for the wage costs, per day of employment. This is a rough average of state-specific minimum wages.

The difficult issue is not whether minimum wages should be paid, but how the cost should be shared between central and state governments. It would not make much sense for state governments to set the minimum wage and the central government to foot the bill. A more realistic formula would be for the central government to pay up to a given national norm (say Rs 66 per day), and for state governments to pay the difference between this and the state-specific minimum wage, if the latter is higher. Other possibilities are also likely to be explored as part of the debate leading to the final version of the Act.

REGA will not undermine minimum wage laws, on the contrary it presents the first-ever opportunity for actually enforcing these laws, instead of their remaining on paper. If people get guaranteed employment at the legal minimum wage (as the Act requires), surely it will be easier for them to get the same from private employers.

What pitfalls do you foresee in the implementation?

Corruption is obviously a major danger. This is why the demand for an Employment Guarantee Act is inseparable from the demand for a strong Right to Information Act. Of course, a Right to Information Act on its own cannot be expected to eradicate corruption. But it will give people a powerful tool to fight against corruption and claim their due.

Another difficulty is that the Employment Guarantee Act will place a major burden on the administrative machinery. In states like Bihar and Uttar Pradesh, where governance is in the doldrums, it would be naïve to expect an Employment Guarantee Programme to take off in a hurry. Quite likely, it will take years, in spite of the legal obligations (the governments of these states have little regard for the law).

However, I think that the administrative hurdles can be overcome quite quickly in many parts of India, especially those that have a strong tradition of relief works during droughts as well as a good potential for labour-intensive public works. I am thinking for instance of large parts of Rajasthan, Madhya Pradesh, Chhattisgarh, Andhra Pradesh, Jharkhand and Orissa. If the guarantee of employment becomes effective in these states within a year or two, it will be a major achievement.

What is the connection between the current work of the Right to Food Campaign and this draft NREGA?

Employment guarantee (and, beyond that, the right to work) is gradually becoming a major concern of the Right to Food Campaign. Last June, a convention on the right to food and work was held in Bhopal, and all the participants agreed about the urgent need to mobilise for an Employment Guarantee Act. But of course, many other people and organisations have been championing this cause for a long time.

The bulk of the population has a stake in the proposed Employment Guarantee Act, and the potential constituency for this issue is very large. Ideally, it should become a national issue - something that people talk about on the train, at tea shops, and in every village. The whole process of mobilising for an employment guarantee has great value in itself, aside from its instrumental role. It could give a new lease of life to the labour movement.

(The "Right to Food Campaign" is an informal network of organisations and individuals committed to the realisation of the right to food in India. See www.righttofoodindia.org)

Financing

The next question related is that of affordability. Can India afford to spare 1% of its GDP for an Employment Guarantee Programme, four years from now? The financial note declares that yes, it can. The idea is that if the Programme is gradually extended over India over four years, starting 2005–6, the inception phase will run well into the Eleventh Plan (which starts in 2007). The transition from the Tenth to the Eleventh Plan provides ample opportunities to restructure the tax system and public expenditure in new directions, including a National Rural Employment Guarantee Programme.

Jean Dreze, an NAC member and a key formulator of this draft law, points out in his interview to India Together that "As the Finance Ministry's own recent studies and reports show, there are vast possibilities for broadening the tax net in India, reducing tax evasion, and raising the tax/GDP ratio. As things stand, India's tax/GDP ratio is very low in international perspective: about 15 per cent, compared with 37 per cent in OECD countries." Give our far lower tax/GDP ratio, Dreze says that funds for NREGA could just as well come from increasing revenues through systematic tax reforms as well increased taxes.

Impact

The NAC is convinced that the programme could lead to a major decline in the standard indicators of rural poverty. Hundred days of employment at Rs.60 per day would provide additional income support of Rs.6,000 per year to each participant household. This increased amount in household income per year would lift a large majority of poor households from below to above the poverty line. The figures may be an overstatement of the potential impact of an Employment Guarantee Programme on poverty, but they help to highlight an essential fact about the economics of poverty: the share of the poor in aggregate GDP is very small, and so transferring even the small amount of the GDP -- 1% -- can make a major difference.

If the Maharashtra EGS is any example to go by, the guarantee of work can also result in empowerment of women and the mobilization of the poor. The proportion of women amongst Maharashtra’s EGS labourers is close to 45%. Gainful employment for women has contributed significantly to their independence and social empowerment. Also, it has been observed that the interaction of large numbers in one place in similar conditions has helped in breaking down social barriers and aiding in their political mobilization. Creation of rural assets such as roads, percolation tanks, etc. can boost agricultural growth and wages, and furthermore, contain the rural-urban migration by creating work opportunities in the rural areas.

It must be noted that the issues of employment guarantee and the right to work have been gathering momentum for quite some time now. Civil society groups held a convention in Delhi on September 19 as a follow-up on the Bhopal convention (June 2004) on the right to food and work. The meetings are part of a series of activities planned in preparation of a nation-wide “Day of Action for the Right to Work” to be held on October 16.

If implemented well, the national-level Employment Guarantee Programme will go a long way in upholding the Right to Work for the poorest who cannot find work but have labour. It will bring in greater security and confidence into their lives, and also serve to strengthen their bargaining power. The guarantee of gainful employment holds the promise of eventually leading to the fulfillment of other basic rights to food, education, and most importantly, to life.