Deliver Us From The Abyss

When confrontation arose over the raising of oil prices and the selling of ten per cent of bhel, Sonia Gandhi promised the Left that they would pass the Rural Employment Guarantee Act (REGA) during the monsoon session of Parliament. In fact, the Left had insisted on this because although the bill had been introduced in Parliament almost a year ago, the government had been dragging its feet over actually tabling it. With Sonia's promise, the government has finally run out of time and now must face the consequences of its own haste in deferring to the wishes of the Left.

To call these moves disastrous would be a profound understatement. Suffice it to say that when the law is extended to the entire country, it may complete the government's descent into bankruptcy. This is not immediately apparent from the calculations of cost that the government has appended to the bill. According to these, it will cost approximately Rs 40,000 crore to employ four million people in 2008-9 when the programme covers the entire country. This will be just about 1 per cent of the GDP in that year.

Now, 1 per cent of the GDP does not sound like a great deal, especially when the consolidated fiscal deficit is already over 9 per cent of the GDP. But this estimate is based on wishful thinking on two counts—it assumes that there will have been no addition to the number of families below the poverty line (BPL) after 2000-2001. This simply does not make sense because in the intervening eight years, even if no extended family actually falls below the poverty line, millions of boys and girls who were in their teens in 2001 will have got married and qualify for employment as members of separate households.

Secondly, it takes no account of the way state governments have in the past habitually inflated their figures, whether of famine or flood victims, loss of crops or persons employed in food-for-work schemes, to fill their coffers with central subventions. Some years ago, when the Centre sharply lowered the price of foodgrains sold through ration shops to BPL families, state after state inflated its BPL estimates and then sold the surplus food they had secured for the phantom families back to the Food Corporation of India as foodgrains procured by them at the normal issue price.

Just last summer, when Prime Minister Manmohan Singh announced that farmers indebted to moneylenders would be eligible for one-time loans from the banking system to pay them off and thus avoid usurious rent, the state governments destroyed the scheme by inflating the number of farmers' suicides in their states by as much as ten to twenty times in order to secure the loans. Kerala, for instance, discovered that 17,000 of its farmers had committed suicide the previous years when the figure for the entire country was less than 14,000. Is there any reason to believe that in a scheme left entirely to the states to administer, they will scrupulously confine the number of BPL families to the number given in the national sample survey on whose basis the cost has been calculated?

Sonia is aware of some of these pitfalls, but the remedy that she has suggested will only increase the cost of the programme. This is to open the scheme to anyone who asks for a job irrespective of whether he belongs to a BPL family and whether others in his family are already employed. For good measure, she has also suggested that once it has been announced in a district, the state government should not have the power to close it down at a future date. These suggestions might simplify implementation but will most certainly raise its cost.

All in all, it will be a miracle if the REGP does not cost Rs 60,000 crore a year. It might still have been worth taking up, if the benefits from the investment wereassured. But the Centre has no such assurance, for the projects will be squarely the responsibility of the stategovernments. The Centre's role will only be restricted to passing on the money demanded and hope for the best. It will have no say in the selection of projects and the priority assigned to them and no way of making the state and local governments account for what they have achieved. To get an idea of the potential benefits, it will have to rely on macro-economic indicators collected by the national sample survey several years later. By these indicators, even the much-vaunted Maharashtra Employment Guarantee Scheme on which the REGA is modelled has achieved very little despite being in existence for 33 years. For the availability of water, sanitation, housing, rural roads and minor irrigation, life expectancy and infant mortality are no better in Maharashtra than in Andhra Pradesh and nowhere near as good as in Gujarat. Maharashtra, as a matter of fact, is not much behind Andhra Pradesh in the number of farmers' suicides every year.

The most irresponsible aspect of the scheme is that while everyone from the prime minister to Prakash Karat knows the money for the REGP does not exist, no one has the guts to say so. The consolidated fiscal deficit is in excess of 9 per cent of the GDP. Another 1.5 per cent borrowed from the banks will crowd out private borrowers by pushing up the rate of interest. This will mean less investment and therefore, guess what, fewer jobs!