Aim right, implementation off

Written by Sharad Raghavan | Updated: May 21 2011, 06:40am hrs
A report released by the World Bank, titled Social Protection for a Changing India, has found that India spends around 2% of its GDP on centrally sponsored social schemes, more than developing countries like China and Indonesia. On the face of it, this is great but a deeper analysis of the major projects of the Indian government, namely the Public Distribution System and National Rural Employment Guarantee Act, shows that there is a large amount of leakage in the PDS system, and a number of ways in which NREGA can better itself.

Public Distribution System

The PDS has undergone several policy changes over the past 15 years. The implementation of the scheme moved from a universal entitlement scheme to a geographically targeted subsidy. Since 1997, it has adopted a targeted approach based on household welfare levels, independent of location. The conclusion the report reaches on PDS is that although it costs 1% of GDP and covers up to 23% of households, it is not anywhere near achieving its objectives of food security and poverty alleviation. Not surprising, given only 41% of the grain released by the government reached the targeted households in 2004-05, according to the report. Coupled with the fact that a large number of wealthier households availed of PDS grain is the astounding amount of BPL grain leakage as stated in the report (see Table). Relying on Planning Commission data, the report says that in the early 2000s, 91.1% of grain allocated for BPL households in Bihar did not reach their intended targets. Punjab, where most of the grain is grown, didnt do much better, with 89.5% of its allocated PDS grain not reaching those it was aimed at. West Bengal performed well in that perioda minor consolation for the defeated Left government, maybewith 73% of the allocated grain reaching the intended beneficiaries.

The World Bank has recommended several improvements to the PDS system at the systemic and implementation levels. It suggests an intermediate approach that retains the food-based entitlement system, but includes private sector participation in grain procurement and delivery. It also recommends the use of smart cards and other forms of technology to improve targeting and increase monitoring.

These seem sensible options, as the private sectors involvement will only increase efficiency, and the increased use of technology can curb the leakages in the system. An interesting suggestion the report makes is a fundamental reform in the PDS that offers households the option of a cash transfer. This will be useful to those states that are having trouble meeting the procurement requirement, and gives households the option of choosing grain or cash, depending on their needs. At the ground level, often what happens is that the leakages take place from the Fair Price Shops (FPS), because selling the PDS grain is economically unviable. The report stresses that fixing this issue will go a long way in tackling leakages in the system. The provision of rent-free premises to FPS and allowing them to sell non-PDS goods are some of the recommendations the report makes towards this end.


The allocation for NREGA by the government up to 2009 is approximately 0.6% of GDP. Administrative data, the report says, indicates that NREGA generates much more employment than previous public works programmes like the Sampoorna Grameen Rozgar Yojana and the National Food for Work Scheme. Within the first year of implementation and covering just 200 districts, 38 million rural households were issued job cards. By 2008-09, this figure nearly tripled to 100 million. However, it does say that the implementation of NREGA across states was patchy, with wide disparities between its extent in various states. Rajasthan, for example, was at the top, with around 90% implementation, and Punjab was the worst, with only 5% implementation. However, unemployment in Punjab is low, so this could just mean that the people in that state dont need to rely on NREGA for employment.

What can be seen in the graph is that despite the rise in registration, as exemplified by the increasing number of job cards issued, there was an increasing gap between those with cards and those actually demanding work. Alongside this, the gap between those demanding work and those actually getting work was negligible. This suggests two things. The first is that people are getting job cards and not using them immediately, using them as a sort of insurance or guarantee of future employment. As such, this is good, possibly reducing the need for seasonal migration. The second, more important implication of the data is that the demand-based structure of NREGA might not be working left to itself. In practice, it is only after a worksite is opened in an area that people come and demand work. However, a worksite is opened in an area only if there is a significant demand for work. This cyclic problem suggests that the supply side is important even in a demand-oriented structure like NREGA.

In addition, NREGA, like previous public works programmes, doesnt take into account seasonality. The seasonal pattern in NREGA is such that employment peaks in February-June, and is at its lowest in July-October. Market-based work is least during the monsoon season, meaning demand for NREGA work would be high. However, the report suggests that the supply of jobs by NREGA during this period is at it lowest because most of its projects cannot be implemented during the monsoon. This suggests that, along with geographical disparity in implementation, NREGA also suffers from a low supply of jobs during a period of high demand.