Column: The corruption must go on

By: |
Updated: Nov 21, 2014 8:49 AM

PDS or NREGA, no matter what ‘in the name of the poor’ scheme you cook up, the poor get less than 15%

There are several reasons why the case for retaining the NREGA employment system, as argued by 28 of India’s leading economists, should be dismissed.

First, it is possible that India’s leading economists are likely to be just plain wrong, and naively so, in their assessment of the worth of NREGA. While this job provision programme has been christened as Mahatma Gandhi NREGA, I feel it is important to not besmirch the Mahatma’s memory with such a corrupt program.

Evidence suggests that India’s leading economists have generally been on the wrong side of economics and economic history. When the developing world, especially in East Asia, began changing course in the early 1960s, many of India’s “leading” economists stayed behind—and behind enough to cheer political moves like the Emergency, and economic views like bank nationalisation, etc. No prizes for guessing that the dominant view of India’s “leading economists” (hereafter, ILE) back in the 1960s was towards heavy state involvement in the affairs of the economy.

Though much has changed in the world, and in India, the ILE view has remained broadly the same—with minor adjustments. The ILEs are not so brazenly Left that they support import controls or industrial licensing—but they are Left enough to support “dole economics” or massive government intervention in the name of the poor (though not necessarily for the poor). For them, it is enough to stop all debate with the simple comeback line—yes, corruption is high, yes, there are problems of delivery but at least some money reaches the poor. In their letter, the ILE state: “Recent research also shows that corruption levels have steadily declined over time…While corruption remains a concern, experience shows that it can be curbed.” I guess corruption, like beauty, is in the ideology of the beholder, or the economist.

It has been documented by several researchers (also see my article, “1960s-style thinking on poverty”, FE ) that the public distribution system (PDS) of foodgrains is one of the most corrupt public delivery systems in India and, perhaps, the world. The extent of PDS corruption has been openly acknowledged by every government in power, including the UPA government. The magnitude of the corruption involved is mind-boggling even for those more knowledgeable about these matters—e.g. FIFA and the BCCI. In the 1960s-style… column, I documented that the poor (Tendulkar poverty line) in India received only 12% of the money spent in their name. Further, about 50% of the foodgrains allocated to PDS just disappears into thin air, i.e., half of the foodgrains that leave the godowns of the Food Corporation of India never reach any ration shop. Think of it as black money generation of about R60,000 crore a year.

This black leakage figure has been supported by every consumer expenditure survey undertaken by the NSS over the last thirty years. However, the government, in the form of Food Corporation of India, claims that there is zero leakage every year and they have their official website to prove that they distributed 50-60 million tonnes of foodgrains every year to the ration shops! The fact that only 30 million tonnes actually reached the ration shop is not of much concern, or relevance to the FCI!

But somehow NREGA is supposed to be different and subject to very little corruption. Why? Because defenders like the ILE state that NREGA involves back-breaking manual work and is therefore self-selecting—only the poorest of the poor would take up a NREGA job. This assumes that in order to receive money for “back-breaking” work you actually have to break your back or even be there. Unfortunately, that is not the case. Calculations identical to those undertaken in PDS evaluations show that far from having low leakage, the NREGA programme is possibly even more corrupt than the PDS system. These calculations are based on the NSS 2009-10 labour and employment survey that contained special and additional questions meant for monitoring and evaluation of the NREGA programme.

Some basic results. The rural development ministry’s website claims that in 2009-10, 284 crore man-days of work was provided to 5.26 crore households. The NSS survey indicates that 3.86 crore households worked on NREGA for 147 crore workdays. Thus, leakage: About half (48%), nearly identical to that of PDS!

But the similarity doesn’t end there. The PDS facts are as follows: Fifty per cent of the food disappears, and the poor receive only 24% of the food that reaches the ration shops. So, out of every R100 spent on PDS, the poor received 12%.

In the case of NREGA, 48% of the jobs accrue to nobody (compare that with 50% of disappearing food!). Of the jobs actually provided, the poor receive 39%. Thus, out of every R100 spent on NREGA, the poor receive R20 (0.52*0.39), some R8 higher than the PDS. So, NREGA’s quite corrupt, but more “efficient” than the PDS? Not so fast. Thirty per cent of NREGA expenditures are capital or non-wage expenditures. Thus, the workers receive only 70% of the total expenditures, and the poor workers receive R14 of every R100 spent in their name. A new identity for the ILE—no matter what scheme you cook up, the poor get less than 15%!

When the 28 ILE’s wrote the letter, the rural development ministry, in charge of implementing NREGA, was quick to respond. In an internal note (but nothing is internal in this connected world) it denounced the writers of the letter as individuals seeking to protect their revenue stream, never mind the ideology. “In spite of clear evidence of rampant corruption at various places, the scheme continues to be presented as a successful scheme. This, perhaps, is due to a solid network of vested interests involving political party functionaries, government officials, NGOs, research institutes and experts desirous of milking the scheme to their advantage”. In my many years of observing policymakers and policy statements, I have yet to come across such a frank and honest assessment of the tribe I belong to. Congratulations to the RD ministry for nailing it!

A more public airing of this PDS-NREGA comparison presented itself last week when NDTV Dialogues anchor Sonia Singh invited me for a genuine debate on NREGA, more so since former rural development minister Jairam Ramesh was part of the panel. But 15 minutes before the show was to begin, I was told to go home since Jairam Ramesh had cancelled his appearance. I returned home, only to learn later that Ramesh had miraculously appeared in the TV studios ready to do the show, with all the pre-scheduled panelists present sans me. The show, and ideology, and the corruption must go on.

The author is chairman, Oxus Investments, and a senior advisor to Zyfin, a leading financial information company. Twitter: @surjitbhalla

Get live Stock Prices from BSE, NSE, US Market and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.

Next Stories
1Companies post worst profit decline in a decade, but market analysts are happy about it
2ICICI Bank closes QIP after raising Rs 15,000 crore; sells shares at 1.9% premium to floor price
3How new-age banking solution geared with AI can help make wise investment decisions