India’s Job Guarantee Scheme Lauded as a Timely Fiscal Stimulus

Sources:
Economist: Faring well; An imperfect storm
Center for Market and Public Organization: Job Guarantee: Evidence and Design

India’s job guarantee scheme under National Rural Employment Guarantee Act of (NREGA) promises 100 days of minimum-wage employment on public works per year to every rural household that asks for it. The NREGA was introduced in 2005 in an effort to improve the purchasing power of the rural people. Although this scheme was once regarded as a “reckless fiscal sop,” now economists argue that India was able to weather the recent global financial crisis due in part to strong rural demand supported by its job guarantee scheme.

The idea gained appeal even in development countries. For example, Paul Gregg of Bristol University and Richard Layard of the London School of Economics have called for a job guarantee program in Britain that provides jobs to anyone out of work for more than 18 months and to young people out of work for one year.

However, there exist some downsides to the scheme with respect to how it is administered in India. As bankers who distribute the payment are reluctant or very slow to do the required paperwork, getting the payments is “grueling labor” in itself. Some bankers are even worse. In Jharkhand, a banker conspired with government officials to fake the number of days worked under the scheme, and took the extra money from workers’ bank accounts. Also, the government often sets the minimum wage higher than the market rate. As people prefer to work for high-paying jobs provided by the government, some factories face labor shortage. In Rajasthan, for instance, a cigarette-making factory had to open only at night when they could find more available workers.

For the foregoing reasons, some argue that handing out cash would be a better solution. It would be easy to administer, and the poor can earn money by working for private employers. However, the poor do not seem to prefer receiving free cash. A farmer in a rural village says, “If money comes for free, it will never stay with us.”

Discussion Questions:
1. In developed countries, workfare is designed to stop people living off the state and to help them find gainful employment by providing training and work experience. Meanwhile, India’s scheme only provides unskilled manual work opportunities. Should the program also provide training programs to improve the recipient’s job prospect?
2. How can India improve its job guarantee program?