The transformation of NREGS!

The Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) was launched in 2005 as a social security mechanism that provided every rural poor household a right to a minimum of 100 days employment. In simple terms, it was the classic unemployment insurance scheme.

Several changes to the nature of the programs have transformed it from an insurance scheme to an entitlement scheme. The most definitive signal of this change was the latest decision to index wages to inflation. In the revised structure, the wages under MNREGA will go up between 17 to 30% on the base of Rs 100 for the present. The revised wages came into effect from January 1 and will keep the index in Consumer Price Index (CPI) as the basis. It means an additional expense of Rs 3,500 crore for the last quarter of 2010-11.

In fact, an even more conclusive proof of its transformation is the formation of NREGS workers unions in union-friendly Kerala. Besides, higher wages and more guaranteed days of work every year, these unions are demanding a pension scheme, a healthcare scheme, provision for the education of their children, and housing and welfare schemes for MGNREGS workers. I have already blogged about the possible incentive distortions of NREGS here, here and here.

In this context, Harsh Gupta offers a nudge that would reconcile the employment creation and asset creation imperatives without creating incentive distortions. He proposes that all rural poor be given an "opt-out" clause of getting, say, half the wage by not working at all. By making this opt-out clause contingent of fulfillment of certain conditions (like sending children to school, vaccinated etc), this would become a form of conditional cash transfer. Since the poor are most likely to accept this, it will provide them the safety net while enabling governments to concentrate on those areas where infrastructure assets need to be created.