The payment of wages into bank accounts for work carried out under the National Rural Employment Guarantee Act has been suggested as a way to prevent embezzlement of funds. The practice has already begun in a few districts. Is this a foolproof system to control corruption? The early experience from a few blocks in Orissa suggests that this process is not free from its own problems.

Thanks are due to Brahmachari, Nikhil Dey, Jean Drèze, Sowmya Kidambi, Rajkishor Mishra, Khetra Mohan, Kartikeyan Pandian and Reetika Khera for helpful comments.

Anish Vanaik (anish.vanaik@gmail.com) and Siddhartha (nlusiddhu@yahoo.co.uk) are both research scholars at the G P Pant Social Science Institute, Allahabad.

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Against this background, this paper presents a few observations on this arrangement, based on a field visit to Mayurbhanj district (Orissa). The investigation was carried out in October 2007, on the sidelines of a larger survey of NREGA in Orissa.1 A small team visited three blocks of Mayurbhanj district (Joshipur, Betnoti and Suliapada). It covered four randomlyselected gram panchayats (GPs) within each block and one worksite in each GP. One worksite in each block was selected for detailed muster-roll verification and a questionnaire was filled at each worksite.

Within Orissa, the system of paying NREGA wages through bank accounts was pioneered by Mayurbhanj. Beginning from late 2006, by May 2007 most blocks in Mayurbhanj had initiated the practice of paying labourers through bank or post office accounts.2 Today all but a few of the remotest GPs in Mayurbhanj disburse NREGA wages through bank accounts.

1 Rationale of Bank Payments

The NREGA attempts to make the process of wage payment (even in cash) as transparent as possible. There are a series of safeguards mandated by the Act.3 Muster rolls are supposed to be maintained at the worksite and displayed at the GP office. Payments are to be made in public in front of all the labourers, with the details of attendance and wages being read aloud from the muster rolls, so as to reduce the risk of fudged entries being made. Job cards are intended to act as a record kept with the labourers themselves of the wages they have received and the number of days they have worked. Through these there has been an attempt to create a new model of accountability in public works, eliminating corruption through the vigilance of workers themselves.

Unfortunately, from the larger survey mentioned earlier, it appears that a number of these transparency safeguards have been systematically undermined in Orissa.4 Muster rolls are almost never present at worksites. The muster rolls that were examined by the survey teams were often found to have fake names or inflated entries, suggesting a siphoning of funds by the middlemen. The job card design was faulty to the point of being useless (e g, it had no column to record wage payments). Contractors, who are banned under the Act from implementing NREGA works, were found at nearly half of the sample worksites. Accompanying them was an elaborate “PC system” (“percentage system”) of bribes to government officials at various levels of the official hierarchy. Indeed, one of the reasons cited for the introduction of bank payments in Orissa is that it would eliminate contractors from the system.

The fundamental attraction of the use of bank accounts for NREGA wage payments in Orissa is twofold. First, as mentioned earlier, it separates the payment agency from the implementing agency, thus making corruption far more difficult. Second, it ensures that money sanctioned for wage payments can be received only by the labourer listed on the muster rolls. It eliminates the possibility of any intermediaries – whether a contractor or a

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government official – getting their hands on the money without the knowledge of the labourer. Once this possibility is eliminated, other records like muster rolls and job cards should fall into place, since there is little incentive to fudge them if you cannot get the money at the end of it.

Bank payments also have a useful transparency role. They extend the trail of transparency all the way down to the money actually reaching the hand of the labourer. In addition, it can be argued that bank payments of NREGA wages encourage savings and help to initiate people to modern banking arrangements.

2 The System

This section discusses the system of maintaining bank accounts and the instruments of transfer.

2.1 Bank Accounts

In Mayurbhanj, accounts have been opened in a variety of banks – rural banks, cooperative banks, nationalised banks and, in a few cases, post offices. The distance between the GP and the bank has been the key criterion for selecting the bank. The effort has been to open accounts in institutions that are as close as possible to the village where work is being carried out. For some of the more inaccessible tribal pockets which are not yet using bank payments, there are even proposals to introduce mobile banks. This is the case in Betnoti.

In terms of opening bank accounts for labourers, a variety of procedures have been followed. In Suliapada and Betnoti blocks, most bank accounts were proactively opened en masse for the labourers, with GPs facilitating the entire process. However, very often, long periods of time would elapse between the time when application forms are completed and the receipt of passbooks. In fact, in most cases, passbooks were received only after the first payments had been made. In Joshipur, on the other hand, there was evidence that the opening of accounts was left to the individuals. The labourers either took the initiative or were made to open accounts so as to access the payment which was compulsorily made through account payee cheques.

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In most cases, these accounts were found to be zero balance or “no frills” accounts. The Reserve Bank of India directive for “no frills” accounts for NREGA purposes has been clearly helpful here. In the post office accounts, a minimum balance of Rs 50 is a requirement and there is a cap of Rs 2,000 on maximum withdrawal, per account, per day.

However, most of the accounts have been opened as operable by one individual. Ordinarily, this is the male head of the household. One of the significant aims of the NREGA is to ensure that women are paid equally and are able to exercise some control over their earnings. To this end, it would be preferable to have at least jointly operated accounts if not individual accounts for each NREGA worker.

Individual accounts for each worker would also double up as a transparency measure. In the current set-up where wage funds are simply credited to the account, there exists no record, including passbook, to identify the particular family member for whom the wage has been deposited. Introducing individual accounts would resolve this problem. On the other hand, there is a case for having a 1:1 ratio of job cards and passbooks, in which case, as will be discussed below, new ways of entering wage information into the passbook should go hand-in-hand with a joint account system.

2.2 Instruments of Transfer

There are slight variations in the methods followed by each of the three blocks vis-àvis bank payments, but all are based on the same basic flow of funds. Once a project is sanctioned, the money for it is sent to the account of the GP.5 As and when payments are due on the conclusion of muster rolls at the worksite, the funds are transferred from the GP account to the labourers’ bank accounts. This is done in one of four ways: letters of credit from the GP account to the labourers’ bank, cash deposits in the labourers’ bank, bearer’s cheques and account payee cheques to the labourers.

Letter of Credit: This is, at the moment, the most common instrument of transfer. In this system, the sarpanch and panchayat executive officer (PEO) draft a letter of credit detailing the accounts of the labourers to which the funds are to be credited. The funds are then transferred directly from the GP’s account into the bank accounts of the labourers. Delays during the course of the transfer of funds from the GP account to the labourers’ have been a major problem where the two accounts are not in the same bank (more on this later). One inherent flaw in this arrangement is that the labourer receives no intimation as to when the wages are credited to his or her account. An intimation procedure needs to be put in place.

(e) Continued Vulnerability to Deception:

The most disturbing finding, however, was that in a number of villages labourers did not have their passbooks with them. In four out of the 11 villages that we visited, labourers either did not have their passbooks or these had been recently returned to them because of the news of an impending survey. In the case of Nahandasole, when we examined the dates of the withdrawal of money, the labourers claimed that the passbooks had been with someone else at the time of withdrawal. In other cases, labourers said that they were with the bank for updating (though a month or more might have passed since the time they received the money). In one instance, a contractor claimed that he had collected the passbooks, “as collateral for loans given to the labourers”.9

Given such evidence that middlemen had collected passbooks, it is difficult to interpret the pattern of deposits and withdrawals found in the survey villages. In four villages where we were able to see the passbooks the pattern was that all the money would be withdrawn on the first visit after deposit. If, for instance, Rs 2,400 was deposited in a post office account on July 10, 2007, Rs 2,000 would be withdrawn on July 10, 2007 itself (this was the maximum withdrawal limit) and the remainder on the very next day. Therefore the money withdrawn was immediately visible in each of these four villages.

However, in each of these, there was also evidence that a contractor or suspected contractor had collected the villagers and accompanied them to the bank. In the one village where we could see the passbooks and there was no suspicion of a contractor, the pattern of withdrawals was more mixed.

(f) Incomplete Separation of Implementing and Payment Agency: One question that must be posed is how effectively the implementing and payment agencies have been separated in Orissa so far. The idea of separating implementing and payment agencies is that, since the implementing agencies would not have the money at any point of time, there would be less of an incentive to fudge the muster rolls. However, the system of payment, as it stands in Orissa, does not achieve this separation to a satisfactory degree. In practical terms, it is panchayat officials who prepare the muster rolls. The same officials then write the cheques on the basis of the muster rolls and sanction payments from the bank.

A more effective separation of these would entail, at one end, some amount of effort at training “mates” (worksite supervisors) to maintain muster rolls and oversee work in conjunction with the junior

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engineer. In this way, the muster roll preparation would not be in the hands of the GP officials. At the other end, it would mean re-examining the way in which the funds are released to the panchayats.

In Andhra Pradesh (AP), the muster rolls are passed directly to the block which sanctions payments and sends it directly to the post office at which the labourers’ accounts are held. The PEOs and sarpanches in Orissa can direct and manipulate the flow of funds in a way that is impossible for panchayat level officials in AP to do. This opens up many possibilities of collusion and misappropriation of funds. A PEO could, for instance, in tandem with a contractor, arrange to have money sent into accounts of people close to the contractor with the money being shared later. The possibility of such collusion is not ruled out in the AP system. It is, however, made less likely since the responsibility of the panchayat officials ends at the point of preparation of muster rolls. They do not deal with the money at all.

As can be seen, the system of bank payments is not free of hurdles. Some of these, for instance bank reluctance, have been negotiated over time. Others threaten to get entrenched if they are not addressed immediately. At any rate, it must be acknowledged that an unqualified enthusiasm about bank payments is unwarranted. Banks in Mayurbhanj cannot be thought to have eliminated fundamental problems, like the presence of contractors or the possibility of corruption. Even some of the more procedural matters – policies with respect to clearances across banks and guidelines about completion of records and measures to ensure prompt payment

– appear to have been inadequately tackled. If there was more clarity on these policies, performance of banking system could have palpably improved. As things stand, over half a year since the introduction of bank payments in Mayurbhanj, one can, at best, express a cautious approval of the banking system in principle, but the details of the system fail to impress.

5 Comparison with Andhra Model

The system of bank payments in Orissa took inspiration from AP’s experience. We have already dealt with the issue of separation of implementing agencies and payment agencies. It is worthwhile to examine some of the other aspects of the Andhra system with respect to the payment of wages through the post office, which have a potential to be fruitfully emulated in other places.

Andhra Pradesh has worked out a method of integrating bank or post office payments with intimation of labourers and records maintenance. When the muster rolls are being paid from the block to the bank, a computerised pay slip is also printed at the block office. These are sent for distribution in public to the village. At the time of their collective distribution, the muster roll details are read out and job card entries can be made. This is a fairly innovative approach that can resolve the two basic problems that affect the banking system in Mayurbhanj: lack of transparency during payment of wages and absence of intimation arrangement.

A second interesting innovation has attempted to address the issue of delays. In some districts of AP, this is being done through advance payments. A payment of Rs 60 (out of a minimum wage of Rs 80 per day) is credited to labourers’ accounts immediately after the end of the week and the rest is credited later according to the work measurements, thus ensuring that labourers do not have to turn to contractors or moneylenders for their immediate needs.

There is much to be gained from understanding these alternative models of payment, particularly with respect to the solution of similar administrative problems. Experiences from AP and elsewhere should be drawn upon in carrying forward relatively new reform tools like the bank payment system.

6 Future Prospects

The system of bank payments for the NREGA in Orissa looks set to be expanded, with a number of other districts preparing to take it on as the model for removing corruption and ensuring correct payments. However, there seems to be little discussion of how a qualitative improvement can be brought about in the system. As we have argued, some thought needs to be put into the strengths and weaknesses of the system before such expansion occurs.

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A major concern is the ad hocism that has persisted in the implementation of bank payments. Bank policy vis-à-vis NREGA wages at a variety of levels should be clarified and standardised as much as possible. Methods of transfer of funds vary from place to place. It is advisable that uniform, transparent procedures be introduced everywhere. Equally important is to avoid accentuating delays in wage payments and the flow of funds. We have already discussed how Andhra Pradesh has used advance payments to address this problem. Delays can also be reduced by negotiating with banks so that local branches are allowed to honour letters of credit from the GP, without having to seek the permission of the regional office.

Related to this, means need to be devised to ensure that labourers are intimated directly when money has been credited to their accounts. In Andhra Pradesh, as we saw, there is a system of pay slips being distributed to labourers when letters of credit are issued to the post office. Apart from the question of intimation, this kind of collective gathering for the distribution of pay slips would ensure that the workers as a collective body remain a vital cog in the transparency processes of the NREGA. Such collective processes would offset the otherwise individualising tendencies of bank payments as a system of receiving wages. Public distribution of pay slips also facilitates the regular maintenance of job cards – a weak point of the system of bank payments in Orissa.

Enhancing Transparency

Bank policy on the question of the kinds of accounts to be opened also needs to be clarified. So far, bank accounts in Mayurbhanj have been opened in the name of male household members. This has significant drawbacks, in terms of gender equality as well as transparency. The best alternative would be a system of individual accounts, though even jointly operated accounts would be preferable to the current system.

It might be useful, also, to devise new protocols for passbook entry as they relate to NREGA wages. As mentioned earlier, the current practice is to club payments from different weeks and for different members

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of the family into one entry. This makes it quite difficult for the recipients to verify that they are getting their due. It would enhance the transparency of the system if there were some indication of the period for which payment is being made as well as of the person to whom it is due (as per the muster roll). Alternatively, a new kind of passbook can be designed which could cover these demands specific to the NREGA.

There is also some evidence that middlemen are being able to withdraw money from the bank for groups of people with simply the signature of the labourers on the withdrawal slips.10 Protocols relating to the NREGA wage payments must strictly disallow such withdrawals without the physical presence of the account holder. At the other end, some amount of information must be disseminated about the procedures to be followed at banks – the processes of deposit and withdrawal, and the importance of the various documents related to the bank (passbooks and withdrawal slips in particular).

It is only when people become more comfortable with banks and banking procedures that there can be a reasonable expectation of savings. Evidence that the payment of NREGA wages through banks is leading to savings has been quite thin so far. Either accumulated debts or manipulation by contractor has meant that most of the wages received by labourers are withdrawn immediately. Nevertheless, if the system succeeds in the long term, it would address some of the problems that seem to impede savings – contractors and indebtedness in particular. In that case, the system of bank payments may well come into its own. Banks can also be effective in solving the problems of storage of money that people in rural areas face. NREGA wages are often received in large amounts, and it is likely that banks, as a safe way to store money, might displace such repositories as gold jewellery.

Last but not least, it is important that bank payments should not be seen as superseding the other transparency measures that the NREGA sets in place. In particular, accurate maintenance of job cards and muster rolls must be strictly enforced. From Mayurbhanj itself, it is clear that bank payments, in and of themselves, cannot eliminate corruption. Improving the system of bank payments can only go part of the way towards that end. Building a culture of transparency and accountability in the implementation of NREGA remains extremely important.

Notes

1 The main findings of that survey are reported in Drèze, Khera and Siddhartha (2007).

2 In Mayurbhanj, both banks and post offices are being used to disburse payments. For the sake of presentational clarity, we will, from here on, only mention “bank accounts” or “bank payments”. It should be noted that post office accounts are similar to bank accounts in most relevant respects. The differences, where applicable, will be indicated.

3 The full text of the Act is available at www.nrega. nic.in; for a reader-friendly introduction, see Dey, Drèze and Khera (2006). A “muster roll” is essentially a record of labourers’ attendance at the worksite, also used for wage payments and to claim funds from the block office. The details of attendance and wages are also recorded on each labourer’s “job card”.

4 See Drèze, Khera and Siddhartha (2007).

5 This applies to projects that are being carried out by GPs. The money for projects operating through the panchayat samiti is released directly from the district to the labourers’ accounts.

6 According to the block officials, this often happens because of a finance ministry guideline stating that for a given scheme, all the funds of a GP must be kept in one bank. Some of them felt that permission should be given to GPs to open accounts in more than one bank.

7 The procedure followed in the case of the post office is similar. The cheque, in that case, is deposited at the regional headquarters of the post office. For instance, for the Betnoti POs, this is at Baripada, this then, comes to the major local PO within the block (Manantri for Betnoti) and the postmaster of the village branch will then go to that post office and carry the money to the

village PO.

8 On job cards in Orissa, see Khera (2008).

9 Apart from our suspicions that he had siphoned off labourers’ wages, this contractor admitted that in exchange for such advances he would reduce the price of the rope he bought from them by Rs 1-2 per kilo. Rope making is a common survival activity in Mayurbhanj during the slack season. The yields from it are extremely low. The fact that even the price of this minimum lifeline is reduced in lieu of loans, speaks volumes about the insidiousness of the system of advances operated by such contractors.

10 The possibility of collusion between middlemen and bank officials was raised by some of the people we spoke to. In such cases, it is important that stern action be taken to discourage further emulation.

References

Dey, N, J P Drèze and R Khera (2006): Employment Guarantee Act: A Primer, National Book Trust, New Delhi, also available at www.righttofoodindia.org.

Drèze, J P, R Khera and Siddhartha (2007): ‘NREGA in Orissa: Ten Loopholes and the Silver Lining’, mimeo, G B Pant Social Science Institute, Allahabad, also available at www.righttofoodindia.org.

Government of India (2006): NREGA: Operational Guidelines 2006, Ministry of Rural Development, New Delhi, also available at www.nrega.nic.in

Khera, Reetika (2008): ‘The Black Hole of NREGA Records in Orissa’, forthcoming in Yojana.