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Implementation of Employment Guarantee: A Preliminary Appraisal

The National Rural Employment Guarantee Scheme has so far posed no problem for the budget. Its allocation is only marginally higher than what was spent in the past by the government on various rural employment programmes. It is a demand-driven scheme and it has fallen far short of meeting demand in some states. The fund utilisation ratio also varies widely across states.


Implementation ofEmployment Guarantee:A Preliminary Appraisal

The National Rural Employment Guarantee Scheme has so far posed no problem for the budget. Its allocation is only marginally higher than what was spent in the past by the government on various rural employment programmes. It is a demand-driven scheme and it has fallen far short of meeting demand in some states. The fund utilisation ratio also varies

widely across states.


he National Rural Employment Guarantee Act (NREGA) was enacted in 2005 to provide a minimum guaranteed wage employment of 100 days in every financial year to rural households with unemployed adult members prepared to do unskilled manual work. In the past, public employment programmes in India targeted at the poor are generally identified with poverty alleviation. The NREGA goes beyond poverty alleviation and recognises employment as a legal right. The only example of guaranteed state-sponsored employment in India is the Maharashtra Employment Guarantee Scheme, which was enacted and implemented under extraordinary circumstances of severe drought in the state during 1970 to 1973 as innovative anti-poverty intervention [Dev and Ranade 2001]. Just as the NREGA provides opportunities for the rural households, to an extent a livelihood security, it presents formidable challenges in implementation. It also needs to be mentioned that the programme is to gradually expand to cover more districts – leading to increased outlays – and there will be much learning by doing in such a major programme.

This article, based on the state-wise employment demand-supply data and the use of funds released under the NREGA budgetary incidence and spatial dimension of the progress of implementation of the Act across states in India. It is to be noted that this is the first full year of operation of the NREGA and the data used does not cover the entire year but is based on the monthly data of the first few months provided on the progress of implementation of the NREGA (see http:/ / by the ministry of rural development. Our analysis is based on the data provided up to August 2006. Subsequently the reporting format and data availability have changed. Due to this, data used for the calculation of various indicators of performance is restricted up to August 2006. Therefore, our conclusions are tentative, based on the preliminary findings on the progress of the NREGA. The article is organised in four sections. Section I discusses the budgetary incidence of the NREGA. In Section II, the issues related to implementation and NREG funding are discussed. Section III undertakes a detailed empirical analysis of the spatial dimension of implementation. Based on the findings, conclusions are drawn in Section IV.

Budgetary Incidence

Though the Act has been passed and implemented, the issue that remains pertinent is the implications of such a large and open-ended commitment for managing the revenue and fiscal deficits especially in the context of the obligations under the Fiscal Responsibility and Budget Management Act. Based on available data, we tried to examine the NREGA-induced fiscal strain in the current fiscal year by comparing the budget burden of other employment programmes (self- and wageemployment) prior to the NREGA and NREGA allocation. As can be seen from Table 1, though the central government mobilises around 10 per cent of GDP as revenue, and the size of the government expenditure measured as a percentage of GDP is around 15 per cent, direct expenditure on rural employment constituted

0.2 per cent of GDP in 1996-97, which declined to 0.13 per cent of GDP in 2001, at a time when human deprivation increased in rural India. Thereafter, although there was an increase in the direct expenditure on rural employment to 0.40 per cent of GDP, it tended to decline and fell to 0.33 per cent of GDP in 2006-07, even with the introduction of the NREG programme. In other words, in the past without the NREGA, the government had allocated a higher amount of resources in terms of proportion of GDP for rural employment programmes in India.

In terms of the share in the central government’s budget, the NREG scheme has made no difference to government expenditure on rural employment programmes (REP). As may be seen from Figure 1, expenditure

Table 1: Key Budgetary Indicators to GDP Ratio

(Per cent)

1996-1997-1998-1999-2000-2001-2002-2003-2004-2005-200697 98 99 200001 02 03 04 05 06 07

Revenue receipts 9.27 8.83 8.59 9.37 9.22 8.87 9.41 9.56 9.80 9.87 10.32 Revenue expenditure 11.67 11.90 12.49 12.86 13.30 13.28 13.79 13.12 12.31 12.47 12.49 Expenditure: MORD 0.58 0.56 0.55 0.48 0.43 0.59 0.74 0.70 0.58 0.78 0.81 Rural employment 0.24 0.23 0.21 0.19 0.13 0.20 0.40 0.37 0.23 0.33 0.33 Total expenditure 14.76 15.31 16.05 15.39 15.58 15.95 16.25 17.08 15.94 14.40 14.43

Figure 1: Budgetary Incidence of Rural Employment Programme: 1996-97 to 2006-07 allowance, one-fourth of the material

costs and administrative expenses of the


state council.


It has been specified in the Act that “if

an applicant under this act is not provided

such employment within 15 days of his



(Per Cent to Revenueand Expenditures)






2006-07 (B)

application seeking employment”, s/he shall be entitled to a daily unemployment allowance which will be paid by the state government. This implies an inbuilt structure of incentive for performance and disincentive for non-performance







for the state government, as the inability

on REPs as a percentage of revenue and expenditure of the government declined sharply in the first three years of the current decade with a marginal increase in the year 2005-06 (RE) and 2006-07 (BE). Despite the introduction of the NREGA, no appreciable spurt in government expenditure on REPs is noticeable. Allocation under the Swarnajayanti Gram Swarozgar Yojana (SGSY) declined sharply over the years, with a corresponding increase in the share of Sampoorna Grameen Rozgar Yojana (SGRY) from 23.3 to 62.1 per cent between 1999-2000 and 2003-04. But the share of SGRY allocation declined sharply thereafter with a corresponding increase in the allocation for the National Food for Work (NFFW) programme. The NFFW programme was stopped with the introduction of the NREGA in 2005-06. A sharp decline in SGRY allocation is evident in the year 2006-07 with a corresponding increasein the share of allocation under the NREGA. In absolute terms, the SGRY allocation declined from Rs 9,639.99 crore in 2003-04 to Rs 2,700 crore in 2006-07 (BE). The total NREGA allocation in the year 2006-07 is only Rs 10,170 crore.

Implementation Issues

It is also surprising to find that the NREG scheme has not been able to provide the employment that one would have expected in poor states that has largely to do with implementation and funding. The NREGA provides for a multi-tier structure of authority for implementation and monitoring of the scheme with specified functions and duties for each authority. The agencies involved are central employment guarantee council, state employment guarantee council, district programme coordinator and the programme officer appointed by the state government and the gram panchayat. The responsibility of the gram panchayat is the identification, execution and supervision of projects as per the recommendations of gram sabha (village assembly). For accountability and transparency purposes, the gram sabhas are given the power to conduct a regular social audit of individual schemes. The authority entrusted with the implementation as laid down indicates that a coordinated approach of different tiers of governments or vertical coordination is critical for successful implementation of the scheme. Also, the horizontal coordination across departments for programme identification and execution of work through the panchayat assumes critical importance. These do not seem to be working too well.

As specified in the act, for the purpose of funding and the implementation of the NREGA, the central government will set up a National Employment Guarantee Fund. Individual state governments will also set up their State Employment Guarantee Fund to make a matching contribution under this scheme. The funding pattern as laid down in the Act specifies that the centre’s obligation would be to make payments of wages for unskilled manual workers under the scheme, up to three-fourths of the material costs of the scheme including wages to skilled and semi-skilled workers and a certain percentage of the total cost determined by the centre. The state government shall bear the cost of the unemployment to provide employment would require the state government to pay an unemployment allowance for which there is no contribution from the centre. In other words, individual states will have to evolve a well coordinated approach to equate supply of employment in accordance to the demand. This becomes all the more important as there is no supply side selection of beneficiaries. It requires an in-depth understanding of region-specific labour demand and its seasonality so that a demand-based scheme of projects can be implemented at a frequency matching the demand for work instead of relying on supply side provisioning. Failure to fulfil these requirements may result in an imprudent use of funds, as the inability to provide employment on demand will impose the burden of compensation in the form of unemployment allowance on the state government. Thus, there is a need to design a monitoring mechanism by strengthening the institutional structure at the local level so that resources can be used optimally. As it is a demand-based provisioning system, the flow of resources from higher levels of the government to the panchayats needs to be assured according to the demand. Thus, it is necessary to evolve a clear mechanism of flow of funds as needed according to the demand rather than through the normal bureaucratic procedures. This would also require

Table 2: Expenditure Distribution across Various Rural Employment Programmes

(Per cent)

1999-2000-2001-2002-2003-2004-2005-2006200001 02 03 04 05 06 07

Swarnajayanti Gram

Swarozgar Yojana 13.1 4.2 4.5 4.3 4.6 6.5 4.2 4.5 Sampoorna Grameen Rozgar Yojana 23.3 15.1 32.2 56.9 62.1 33.1 35.8 11.2 National Food for Work Programme 28.2 16.4 7.5 5.7 0.0 13.1 19.0 0.0 National Rural Employment

Guarantee Scheme 0.0 0.0 0.0 0.0 0.0 0.0 0.0 42.3 Other Expenditure 35.4 64.4 55.7 33.1 33.2 47.4 41.0 42.0 Total 100 100 100 100 100 100 100 100

Source: Union budget documents (various issues).

Economic and Political Weekly February 17, 2007

coordination between providing work and Table 3: NREGA Districts: State Income and Poverty

the provisioning of funding. Stringent States are in Ascending Per Capita No of NREGA Distribution Distribution conditionalities in fund release apart, Order of Per Capita Income Income Districts of Rural of Rural BPL the demand based provisioning may be (Rs) Households Households potentially regressive. As it stands now, General Category States under the scheme funds will be released Bihar 5606 23 14.36 20.73

Uttar Pradesh 9963 22 13.26 13.49

based on the annual work plan and budget

Orissa 10164 19 7.10 11.11

proposal (AWPB) by the states. As the Jharkhand 11139 20 6.29 9.08 capacity to formulate AWPB by the states Madhya Pradesh 11500 18 6.57 7.94 is low in poorer states, the actual release Chhattisgarh 12244 11 3.75 4.53

Rajasthan 12641 6 2.40 1.07

may fall far short of potential demand

West Bengal 18494 10 13.08 13.58for funds. Andhra Pradesh 19087 13 12.43 4.48 Karnataka 19576 5 2.38 1.35 Tamil Nadu 21740 6 3.83 2.56Spatial Dimension Gujarat 22624 6 2.57 1.10 Kerala 22776 2 1.14 0.35 As mentioned earlier, this scheme is Punjab 26395 1 0.41 0.09

being implemented in 200 identified back- Haryana 26818 2 0.48 0.13

Maharashtra 26858 12 6.87 5.32

ward districts in the country spread over

Special Category States

27 states. In these districts panchayats are Assam 12247 7 1.51 1.97

the principal agency through which the Manipur 12878 1 0.03 0.04 Jammu and Kashmir 14507 3 0.45 0.06

Act is being implemented. Panchayats are

Uttaranchal 14947 3 0.38 0.39

responsible for the identification, execu-Meghalaya 16803 2 0.19 0.25 tion and supervision of projects as per the Arunachal Pradesh 16946 1 0.01 0.02 recommendations of the gram sabha and Tripura 18550 1 0.11 0.14

Sikkim 20013 1 0.02 0.03

the ward sabhas and the gram sabhas are

Nagaland 20746 1 0.06 0.08given the power to conduct regular social Mizoram 22207 2 0.04 0.05 audit of individual schemes. Himachal Pradesh 22902 2 0.28 0.07

All States 17883 200 100 100

As can be seen from Table 3, of the 200 districts coming under the scheme, 119 fall Source (basic data): in seven states, viz, Bihar, Chhattisgarh,

Table 4: Enrolment and Provisioning: Statewise Comparison

Jharkhand, Madhya Pradesh, Orissa, Rajasthan and Uttar Pradesh. Needless States are in EG Enrolment as Per Cent of EG Provisioning as Per Cent of

Ascending Order of Rural Rural BPL Number of Rural Rural BPL Number of

to mention, these states rank low in socio-

Per Capita Income Households Households Applicants Households Household Household economic development. These are also Enrolled

pre-dominantly rural and 53.73 per cent

General Category States

of the rural Indian households and

Bihar 22.20 50.11 66.05 5.47 12.35 24.65

67.95 per cent of the rural below poverty Uttar Pradesh 40.81 130.73 95.28 13.30 42.61 32.60

line (BPL) households reside in these Orissa 57.16 119.05 79.38 NR NR NR Jharkhand 35.49 80.12 64.14 NR NR NR

119 districts. This distribution pattern of

Madhya Pradesh 123.42 333.03 99.06 44.19 119.23 35.80districts in terms of rural BPL households Chhattisgarh 222.37 24.88 30.19

82.41 95.05 67.14

evidently reflects the intentions of the Rajasthan 109.96 800.31 98.57 65.39 475.94 59.47 West Bengal 48.34 151.77 75.88 13.46 42.25 27.84

NREGA to attack the poverty stricken

Andhra Pradesh 64.98 588.08 100.00 11.44 103.53 17.60

regions of the country first. These re-

Karnataka 24.58 141.45 48.62 NR NR NR gions are also the most backward in terms Tamil Nadu 49.55 241.14 98.97 3.76 18.28 7.58 of rural connectivity, spread of banking, Gujarat 44.02 334.25 100.00 6.64 50.44 15.09

Kerala 36.61 390.27 99.36 NR NR NR

nature of rural power structure and

Punjab 16.81 264.34 92.51 NR NR NR quality of governance. It should not be Haryana 378.98 6.47 20.63

31.34 96.89 78.18 overlooked however that there are districts Maharashtra 29.48 124.29 26.44 2.54 10.71 8.62

Special Category States

to be covered in the north-east region

Assam 50.40 125.88 68.51 10.90 27.22 21.62

which have their own special problems.

Manipur 110.72 276.52 29.49 NR NR NR However, the number of districts to be Jammu and Kashmir 66.05 1663.61 85.20 NR NR NR covered in the north-east including Sikkim Uttaranchal 92.89 297.54 67.64 9.99 32.00 10.76

Meghalaya NR NR NR NR

is only 16.

Arunachal Pradesh NR NR NR NR NR In order to examine the performance of Tripura 279.14 125.20 112.02

111.77 91.93 312.68

the NREG scheme implementation, suit- Sikkim 40.60 101.38 92.06 NR NR NR Nagaland 87.30 218.05 100.00 NR NR NR

able indicators need to be developed which

Mizoram 35.13 87.74 100.00 9.34 23.33 26.58

would reflect the demand side or the

Himachal Pradesh 52.78 664.68 96.65 23.74 298.93 44.97 preference for the NREG scheme among All States 51.19 166.85 79.15 12.06 39.32 23.57 rural households and also supply side

Notes: Household numbers pertain to Census 2001. Thus, in some states EG enrolment to ruralperformance or the performance of the household ratio is more than 100 per cent; NR: Not reportedgovernment. The demand and supply side Source (basic data):

Figure 2: NREG Fund Utilisation Ratio: An Interstate Comparison

Bihar Utttar Pradesh Jharkhand West Bengal Andhra Pradesh Tamil Nadu Gujarat Punjab Chhattisgarh Hary Rajasthan Madhya Pradesh Orissa 0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0 0 2 4 6 8 10 12 14 (Fund Utilisation RatioKarnataka

States in Ascending Order of Per Capita Income

preferences are captured through the following ratios:

  • (i) Employment guarantee (EG) enrolment as percentage of total number of rural households.
  • (ii) EG enrolment as a percentage of rural BPL households.
  • (iii) EG enrolment as a percentage of application for enrolment.

    The first two ratios will reflect the preference of the households (non-BPL and BPL) for NREG employment. The third ratio will show the suppliers response to demand for enrolment for employment guarantee. It is to be noted here that enrolment for a employment guarantee does not necessarily mean provisioning of employment. Enrolment is done based on an application to the panchayat for a job card by the person demanding employment. The issue of a job card or enrolment is a prerequisite for NREG employment.

    The supply side performance is judged also in terms of three following ratios:

  • (i) EG provisioning as a percentage of rural households.
  • (ii) EG provisioning as a percentage of rural BPL households.
  • (iii) EG provisioning as a percentage of number of households enrolled.

    The first two ratios will reflect the coverage of the schemes among the BPL and non-BPL households. As the scheme is self-selecting in nature, if the second ratio is greater than one, it would imply that non-BPL households are also enrolling for the NREG programme. The third ratio will show the suppliers’ response to demand for employment vis-à-vis enrolment.

    It is evident from Table 4 that EG enrolment as a percentage of rural households enrolled for NREG scheme varies widely across states. It is also to be noted that enrolment for the NREG scheme far exceeds the number of BPL households in most states, except for Bihar and Jharkhand. In Bihar and Jharkhand, only 50 and 80 per cent of BPL households could obtain NREG enrolment. If we look at NREG enrolment as a percentage of the number of applicants, it is abysmally low in Maharashtra, followed by Karnataka, Bihar and Jharkhand. It is also to be noted that while for Andhra Pradesh and Gujarat the supply of employment has met the demand, for most other states enrolment falls far short of the demand. The all-state ratio is 79.15 per cent.

    If we look at the fund utilisation ratio defined as the fund allocation to actual utilisation, it is again low in poorer states in the country (Figure 2). The trend line plotted through the scatter shows a positive slope implying that the states with higher per capita income could manage to spend more.

    Summing Up

    The above analysis indicates that the existing institutional arrangement in poorer states is not good enough to implement the NREGA in an effective manner. It needs to be mentioned that the data provided in the latest report on NREGA published by the ministry of rural development also indicate that the fund utilisation ratio remains as low as 51 per cent even after the completion of one full year of operation of NREGA. In other words, only half the total available funds were utilised during the year. The utilisation ratio is particularly low in poorer states. In other words though there is improvement, there is no significant alteration of the pattern observed in earlier months. There is an urgent need for both vertical and horizontal coordination across levels of governments within the states. The gram sabha can play an active role in the planning, monitoring and supervision of projects. In many places panchayats do not have the necessary capacity to manage the schemes and capacity building ought to take place at the panchayat level. Devolution of responsibilities and strict accountability norms would accelerate capacity building at the level of the panchayat and the scheme can effectively function as a demand-driven one. In assessing the demand for labour, panchayat level preparation of labour budgets would go a long way for effective implementation.

    Keeping the spatial dimension of the implementation in mind, the importance of the smooth flow of funds for implementation of projects in accordance with the demand, capacity building at the village level, right to information to enable social audits effectively, accountability of functionaries and an effective grievance redressal mechanism assume critical importance. There should also be an oversight mechanism to guard against the possibility of the intention of the NREG scheme being frustrated through “elite capture” by panchayats whether by the ruling party cadres or through domination of castebased politics. However, it needs to be emphasised that better coordination by the levels of governments with the gradual expansion of the programme covering more districts would lead to increased outlays and one would hope that the programme effectiveness will increase with experience, particularly in poorer states.



    [I am grateful to Amaresh Bagchi for his comments on the draft and M Govinda Rao for very helpful discussions on implementation of NREGA. Usual disclaimer applies.]


    Dev, Mahendra S and Ajit K Ranade (2001):‘Employment Guarantee Scheme andEmployment Security’ in S Mahendra Dev,Piush Antony, V Gayathri and R P Mamgain(eds), Social and Economic Security inIndia, Institute of Human Development,New Delhi.

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