In the first year of the proposed National Rural Employment Guarantee Act, the government will not require any additional funding, says Jairam Ramesh, a member of Sonia Gandhi's National Advisory Council.
By the end of four years, when the NAC's draft employment act expects the entire country to be covered, it estimates this will cost around Rs 40,000 crore {(Rs 400 billion) at 2004-05 prices}, or around one per cent of GDP in 2008-09.
NAC's estimates show in the first year, when just the poorest 150 districts of the country are to be selected, a total of 8.35 crore (83.5 million) of the country's total 20 crore (200 million) poor persons will be covered {that's 1.67 crore (16.7 million) households}.
At a wage rate of Rs 60 per person and another Rs 40 as the capital cost of providing the job, a total of Rs 100 per person is the estimated cost of providing jobs. So, at a total of 100 days of jobs, this works out to Rs 16,700 crore (Rs 167 billion) in 2005-06, when the scheme is expected to be implemented.
Since the government spends around Rs 12,000 crore (Rs 120 billion) on job creation schemes even today, it is expected that next year's funds could come from merely merging the schemes if need be. At least half the funds would be transferred directly to gram panchayats to ensure better execution.
While the NAC is not in favour of such straight forward mergers (how will any new employment get created if this happens?), the Planning Commission is working on trying to merge the guaranteed employment act with various existing schemes like those on irrigation and road building.
So, in a roads project like the PM's rural roads one, the labour component of the scheme could be adjusted in the job-guarantee scheme, and ditto for other schemes.
While the scheme is to be open to any rural household, it is expected that the nature of the work it will provide and the wage rate paid will ensure only the poor will avail of it -- some studies have shown, however, that the non-poor participation was even higher than 50 per cent in Maharashtra.
The proposed scheme is already running against major opposition from the states as they are being asked to pay unemployment doles to families who they can't provide jobs to.
Under the scheme, a person just has to register for work, and if he/she is not provided a job within 15 days of this, the state government will have to pay an unemployment allowance of at least a third the statutory minimum wage for agricultural labourers till such time that the family gets paid the amount they would have earned if one member had got a job for 100 days a year.
According to the NAC's position paper, if successful, the program would generate around 1.1 crore (11 million) jobs per day, an amount that's equal to around 5.5 per cent of the total population below the poverty line.
While this seems low, the paper says, the EGS that was run in Maharashtra for decades had a 'participation' rate of just three per cent at its peak, when there was a severe drought in the state.
While attractive on paper, the proposed act has several pitfalls. An evaluation of the Maharashtra scheme (the intellectual parent of this one) by S Mahendra Dev and Ajit K Ranade estimates that for every Rs 100 spent on such a scheme, the poor get Rs 21.6 versus Rs 11.2 in the case of PDS.
While a 20 per cent success ratio seems low to the layman (Planning Commission member Abhijit Sen says its good for such programmes), even this goes for a toss if any assumption goes slightly wrong.
The NAC assumes the capital cost and administrative charges of a scheme will be a maximum of 40 per cent while Dev/Ranade's paper says it is 50 per cent in Maharashtra.
This figure may in fact be conservative. While calculating the benefits, Dev/Ranade assume a 'leakage' of 20 per cent, in the sense that workers are paid below what they're legally guaranteed.
In reality, the figure could be a lot more. In 1999-00, according to Abhijit Sen, people reported to the NSS that they were working 250 million mandays on 'public works' while the government spent enough for 500 million!
Increase this 'leakage' assumption to 40 per cent, and for every Rs 100 spent on the guaranteed-job scheme, the workers will get only Rs 12.6, undermining the scheme's very raison d'etre.
