Widely lauded for putting more money in the hands of India’s vast rural population, the National Rural Employment Guarantee Act (NREGA) provides guaranteed employment of 100 days per year to the poor in India’s villages. While there are mixed views about the effectiveness of its implementation, NREGA is based on the fundamentally sound principle of pay for work, rather than charity.
In the early 2000s when I was in Germany, I’d noticed great pride among its citizens for its social security system which included a liberal payout to the unemployed. The subtext was third-world countries were too poor to afford social security, so people there would be on the streets if they were fired from their jobs. While the German system prima facie appeared to be very humane, you could easily spot the pitfalls the moment you scratched the surface: Comfortable with a generous unemployment dole – if I recall, the figure was as high as two-thirds of the last drawn net take home salary – people who were laid off would refuse to attend interviews arranged by the state-owned employment office if their new jobs meant relocation to another town or even called for a travel of more than 20-30 kms from their homes. As a result, they stayed unemployed longer and the government had to cough up unemployment benefits for more time, leading to a great strain on public finances.
Such unintended consequences of handouts add credence to views publicly expressed by Mukesh Ambani, the chairman of India’s largest private sector company, Reliance Industries Limited, who recently said, “one factory is worth ten charities”, in his speech at a recent public gathering – surely, providing work and pay for work is better than any form of handout.
Jean Dreze, the Belgian-born economist who turned Indian citizen in 2002, is widely credited for conceiving and implementing NREGA. It is not known whether Dreze was familiar with the pitfalls of typical European social security schemes and decided to avoid them by consciously architecting NREGA – a sort of Indian version of social security – along the lines of money for work and not as government handout while staying unemployed.
The soundness of NREGA – at least in principle if not in actual implementation – leads to the question, why not a similar program – NUEGA, or National Urban Employment Guarantee Act, as it could be called – targeted at India’s urban poor?