In a land where reportedly every generalization is trivially true, one generalization holds non-trivially and with overwhelming force. It is this: Indian governments are pro-poor. Every policy that any government ever espouses, fundamentally it always is pro-poor, irrespective of any minor variations such as pro-market or pro-planning or pro-industrialization or pro-globalization or pro-self sufficiency or whathaveyou.

My claim is that this pro-poor policy is not mere rhetoric. The policy works and how. I argue that all other policies have not yielded their expected results but the pro-poor policies have delivered as could be reasonably expected.

Pro-industrialization policies are expected to lead to an increase in industrialization. If India ever had such policies, they have had only marginal success because India is arguably not an industrial economy. Pro-poor policies are expected to promote the number of the poor, and there has been a monotonic increase in the number of poor in India.

The percentage of people below the poverty line is estimated to be around 25. That is, India has about 250 million people who are so unimaginably poor that they can’t cross the poverty line that is set way below what can be considered necessary for a human existence. Around 33 million were added to that role in 2001-02 alone For comparison, that is more than the entire population of Canada in 2001 (30 million).

Let’s put the number of the abjectly poor in perspective. Consider the number of people below the poverty line at the time of India’s independence. We had about 350 million people then. Assuming that 50 percent of them were below the poverty line then, there were 175 million abjectly poor people then. Now, about 57 years later, we have 250 million abjectly poor people. There has been an increase of 75 million in the ranks of the abjectly poor in the nearly six decades of pro-poor policies..

India’s pro-poor policies have succeeded in increasing the number of poor in the past and while past performance is not a guarantee of future results, the most probable outcome of current pro-poor policies can be expected to lead to increase in the number of the poor. The “Employment Guarantee Scheme” (introduced by the National Rural Employment Guarantee Bill) is pro-poor and the result will be as before.

National Rural Employment Guarantee Scheme (NREGS)

It promises Rs 60 per day for 100 days of employment a year to one member of every rural unemployed family. The Central government funds this scheme, with the State expected to contribute 10 percent of the cost. The cost in the first year alone is expected to be around Rs 15000 crores (or approximately $3.3 billion.)

The NEGS is not novel. Maharashtra has had an employment guarantee scheme for decades. According to Sharad Joshi, it “has produced few permanent assets. And the EGS in Maharashtra is synonymous with corruption. Government officials concoct false registers of attendance.”

Corruption is not unexpected when money is involved and the transaction is between officials who have the power and control over the money, and the poor unemployed labor who would be willing to take only a share of whatever is due to him or her. It has been variously estimated that only about 25 percent of any relief money actually reaches the intended beneficiary. Politicians and bureaucrats steal the majority of funds.

As a matter of equity and fairness, the rural poor do need some kind of safety net. The design of exact mechanism of a safety net is not easy considering the scope of the problem. But a number of questions that arise in connection of the NREGS and needs to be investigated. Even if the NREGS is not beset with corruption and fraud, is it the best mechanism?

Is the scheme consistent with the reforms required in the economy? Will the secondary effects drown out whatever primary benefits that accrue to the rural people?

The basic objection I have to the scheme is that is in effect it is a purely income redistribute scheme. A purely redistributive scheme is not objectionable in and of itself provided there is sufficient production but the production suffers from mal-distribution. However, the basic fact is that the production itself is insufficient. So in this case the all effort should be made to increase production and simultaneously seek a more equitable distribution.

The money spent on the NREGS has an opportunity cost. What is lost is the government’s ability to fund production enhancing projects. Suppose the money was spent for a massive drive to provide primary education and health services to rural areas coupled with a reduced family size drive. Or it was used to improve the infrastructure of the country such as building a modern rail transportation system. Any of a large number of public works projects would generate large employment opportunities and lead to capacity building and thus to an increase in the total national income. In this case, it would not be just an “employment generation” but “income generation”.

The problem is that the focus of the proposal is flawed. It focuses on employment instead of focusing on increasing incomes. The distinction is important. Income, to an individual, is a share of the total production that the economy produces. By focusing on the employment and not on the production, the scheme merely redistributes the proceeds of a limited production.

In summary, the NREGS will have the expected effect of deeping poverty and enriching the bureaucratic and political intermediaries. That the Left support this misguided scheme should have been sufficient proof of its effects. But I guess we will have to go through with this despiriting exercise once again before we learn the lesson that increasing employment is not the same as increasing production.

[Also see the importance of producing stuff and "Sir, won't you buy this employment guarantee act?"]