World Bank: MGNREGS worked less well in India’s poorest states

By: | Published: April 29, 2015 3:16 AM

Mahatma Gandhi National Rural Employment Guarantee Scheme has paradoxically worked less well in India's poorest states: World Bank.

The Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS), touted as the world’s largest anti-poverty programme, has paradoxically worked less well in India’s poorest states, the World Bank said in a report on Tuesday.

Comparing two states, Andhra Pradesh (relatively developed) and Bihar (poor), a World Bank study found that the MGNREGS delivered a significant positive impact in Andhra Pradesh on a range of outcomes — from consumption and nutrition to quality assets and productivity improvements.

But in Bihar, more than two-thirds — about 10 percentage points — of the gap between the potential and actual impact of the scheme was due to unmet demand, the World Bank said in its latest India Development Update.

The scheme, under ideal conditions, would have reduced the poverty rate by 14 percentage points in Bihar, but the actual impact was only one percentage point, according to the Update.

“The supply side is too slow to respond to the demand for work on the scheme; workers are not paid the full scheme wage; delays in wage payment; awareness of how to demand work is limited,” the Update said, pointing out the reasons why the potential impact of MGNREGS may not be realised fully.

Rinku Murgai, an economist at the World Bank, said the better performance of relatively developed states could be due to better capacity building.

The scheme employs five core beneficiary households at a cost of 0.5-1% of India’s GDP.

Separately, the Update said the Indian economy would grow at 7.5% in FY16 before accelerating further as policy changes gather momentum, as the country’s economy has turned a corner. “The outlook for the Indian economy is underpinned by two main trends: first, a relatively benign external environment, particularly low commodity prices, creates policy space; second, a reform programme which, if fully implemented, can unlock investment and boost total factor productivity growth,” according to the Update.

While data constraints make it difficult to estimate potential GDP with precision, the multilateral agency estimated potential growth to nearly converge to 8% by 2017-18 from 6.9% in 2013-14. The World Bank has projected that the Indian economy grew 7.2% in FY15, lower than the government’s own estimate of 7.4%.

The World Bank’s growth projections are in line with the IMF’s projection for India, both predicting India’s pace of growth would outpace China in FY16 to become the fastest growing large economy in the world.

India’s economy has seen a remarkable turnaround in the last one year with most economic indicators, such as inflation, current account deficit, fiscal deficit and foreign exchange reserves, showing strong improvement. Inflation outlook also remains benign, based on expectations that global food and oil prices remain low, the report said.

To improve economic prospects, the Update calls for fiscal reforms that protect public capital spending, financial sector reforms and improving ease of doing business environment. It also called for timely implementation of GST.

The Update, however, cautioned that the outlook rests crucially on oil and commodity prices remaining close to current levels. India also remains at risk of the disruptive impact of potential tightening of the US monetary policy on its exchange rate and financial markets, it added.

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