NREGA wage payments through banks: Taking Stock

Anindita Adhikari

In May 2008, the Government declared that wage payments, under the National Rural Employment Guarantee Act, the world’s largest rural public works programme, would be made through banks. According to a recent announcement, under the new system of financial inclusion 8.60 NREGA workers accounts have been opened and about 82% of wages i.e. close to 17,000 crores have been disbursed through these accounts up to December 2009 - accounting for 70% of the expenditure under the programme. Although this new system has been hailed as a foolproof, cost-effective solution to reduce leakages and to promote greater transparency, the transition was rushed and several complications with the new system are now becoming apparent.

Delays in wage disbursement: The issue of delays in wage payments is one of the most serious problems with the system of bank payments. Reports from several states including Jharkhand, West Bengal, Chhattisgarh, Rajasthan, Madhya Pradesh, Uttar Pradesh and West Bengal indicate the problem of delayed payments and dwindling interest in employment under the NREGA is rampant across several states.

It is a well established argument that the coverage of banks and post offices in rural India is patchy and as a consequence workers especially in remote parts of the country find it difficult to travel long distances to collect their wages causing delays in payments. Interestingly though findings from a survey in UP and Jharkhand indicate that close to 90% of workers who lived more than 5 km from a bank/post office expressed a preference for bank payments over cash despite the distance, indicating the deeper problems lie elsewhere. An important cause of the severe delays in the disbursement of wages is the institutional incapacity of rural banks to handle the huge volume of accounts. The shortage of staff and technology is most acute in post offices where accounts are managed manually through log journals.

However, the cause of delayed payments is more complicated than this. There are several bottlenecks associated with the different steps in the wage payment process: Filling the muster roll, measuring work and matching with attendance, preparing payment orders, sanctioning of cheques by officials and finally crediting of wages in workers accounts by the bank. Centre-state financial norms are not always clear and often mired in politics causing significant delays in the flow of funds from the central to state governments. A detailed discussion on these delays at different levels can be found in a recently published article by Reetika Khera called ‘Wages of Delay’.

Although such delays legally entitle workers to unemployment benefit, compensation has rarely been paid which is a clear violation of the Act. The government has acknowledged this gap and has sought to rectify it by directing state governments to ensure that the ‘twin legal mandates’ of wage payment within 15 days and through institutional accounts are ‘scrupulously adhered to’. A host of directives follow such as holding of a monthly Gram Rozgar Diwas at the panchayat level in which issues of payment backlogs will be cleared, strict monitoring of timely payment of wages by the District Programme Coordinator etc.

The ‘Business Correspondent Model’ which is currently being rolled out by the government is an attempt to address this problem of delayed payments and ensure that the rural poor have timely access to financial services. How this works is that the business correspondent (BC) would, on behalf of the banks, for a commission, deliver financial services to ‘clients’ though appropriate technology like handheld computer devices. However, given that the problem of delays is more complex than a simple issue of institutional access, the solutions might lie beyond the scope of this administrative ‘innovation’.

Corruption: While the move of separating the implementation and payment agencies has countered the earlier forms of corruption such as siphoning of funds, some forms of embezzlement have persisted and some new forms have emerged. The first is through ‘deception’ where often the abhikarta (implementing agency) in collusion with the bank officials withdraws money from the accounts of workers without their knowledge. The second is through ‘exploitation’ where genuine workers withdraw their wages themselves but are forced to hand over part of their money to the contractor or sarpanch based on a pre-decided ‘deal’. The third method is where workers ‘collude’ with the implementing agency and fake names are entered in the muster roll on the basis of which wages are withdrawn.

While the first type of embezzlement can be effectively dealt with through strict enforcement of certain minimum safeguards such as ensuring money is only withdrawn by the account holder. The other two types of embezzlement are perhaps more difficult to counter because they are borne out of an essentially feudal, exploitative set up in which rural banks function.

Taking strict action against such corruption, the government has restated that unfair practices in the system of wage payments will be punishable under section 25 of the Act. However the record for invoking this clause has been quite abysmal. While enforcing this penalty clause which allows for a fine up to 1000 will ensure accountability to some extent, there is a pressing need to restore transparency safeguards already built into the act. Public scrutiny of wages through reading out muster rolls and regular updating of job cards needs to be reinstated. This is a powerful practice because it enables workers to verify their attendance and monitor wage payments themselves, thereby curbing corruption.

The switch to bank payments has without a doubt provided substantial protection against embezzlement and is a critical step towards ensuring greater accountability in the disbursement of wages under the NREGA. However, the issue of delays in wage payment needs to be tackled swiftly by both streamlining processes and mechanisms under the system of bank payments as well as reinforcing traditional safeguards.

Anindita Adhikari is a Research Associate with the ASER Centre.

So Where's the Debate?

The Budget Session of Parliament has been on from February 22nd and will continue till May 7th , but with a little over a week left of the session, it begs the question – where has been the debate? Rather – what has Parliament been debating ?

Nearly every day these last few weeks, we hear about adjournments to Parliament due to disruptions by the opposition – from IPLgate to MP’s demanding suspension of Question Hour over the phone tapping issue. But while Parliament has been busy creating a ruckus over Shashi Tharoor, IPL, and the phone tapping scandal – some of the bigger questions affecting millions of people have remained unasked. Have we forgotten what the main functions of Parliament are?

In a recent article, MR Madhavan of PRS legislative research had pointed out that "Parliament’s main functions are legislative, oversight-related and representative; its mandate does not primarily include investigative work”. Parliament is an important forum where critical public debate can incur and elected representatives get an opportunity to ask the hard questions on behalf of the people they are accountable to and in turn get asked questions for which they in turn are accountable.

Yet a look at last year’s Budget Session gives a clear idea of the lack of adequate debate on the social sector - issues that affect millions of Indians on a day to day basis. Of the nearly 5400 questions asked during the session last year, only 5 percent of them were asked to the Ministry of Health and Family Welfare, 4 percent to the Ministry of Human Resource Development and a meager 2 percent to the Ministry of Rural Development. This is despite the fact that the government spent Rs 3,98,828 crores in 2008-09 on the social sector according to the revised estimates by the Economic Survey.



Even in terms of the type of questions asked some of the big issues remain unaddressed.

For example, while elementary education constitutes over 50 percent of total allocations for education, most of the questions last year pertained to higher and university education. Moreover, questions continue to be concentrated on access and coverage issues – enrolments, construction of new building etc, with quality education receiving a lesser priority. This is despite the fact that the ASER report released earlier this year had found that while 96% of children in rural India in the age group of 6-14 years are now enrolled in school, the quality of education is still quite poor. However, in the entire budget session last year, there were only 15 instances where questions related to teachers were asked – with 8 of those relating to recruitment and only 3 relating to quality including teacher trainings.

Similarly, while rural development particularly NREGA ( now MGNREGA) has been receiving a huge push in terms of money allocations – it received Rs. 36,750 crores in 2008-09 – up from Rs. 14,220 in 2007-08 – there were only 39 instances of questions relating to it.

In the backdrop of rising food prices and huge problems in effective targeting of ration cards ( from July 2000 till December 2009 – 53 lakh fake ration cards in West Bengal, 10 lakh in Andhra Pradesh and 7 lakh in Gujarat have been discovered and destroyed and there probably exists many that are yet to be discovered)- even the issue of Public Distribution System and Food Security got only 31 questions. Rural drinking water and sanitation, another major problem – received 16 questions. With numerous disruptions during the Session this year, this record may be worse.

As the Budget Session enters its last week let’s try and remember what the main functions of the Parliament are and leave the investigative work to the already existing bodies who have the required skills and expertise such as the CBI, CID’s, Enforcement Directorates etc, and start asking some of these questions.

Avani Kapur is Researcher and Coordinator, PAISA Project at the Accountability Initiative

Employment Programmes By Any Other Name

Maitreyi Bordia Das

Is it an employment program? Is it an anti-poverty program? Is it a safety net? Is it a disaster management program, is it…..? Actually, it’s all of these. Public works programs are both good development and good politics. India’s National Employment Guarantee Scheme (now called the Mahatma Gandhi EGS) , despite its implementation challenges, is fast becoming the stuff international lore is made of.

Demographers talk of the diffusion effects of ideas of low fertility and other behaviors. And while South Asian countries have a history of public works programs as safety nets – a history that actually goes back to the Maurya Empire in circa 3rd century BC - the diffusion effect of NREGS across South Asia is apparent. This is as much due to the urgent employment needs in all countries in the region, as due to the fact that the Congress victory in India was purported to have hinged significantly on NREGS.

Consider some South Asian countries. Nepal has several public works programs based on both cash and food. In the remote and intractable hill districts (known by the omnibus category of the “Karnali Zone”) the government implements a food for work program, for which the World Food Program delivers food. There are similar programs in southern Nepal. Last summer I was in Sunsari - the part of the Tarai that was ravaged by the Kosi floods - and it was quite clear that the demand of public works programs far outweighs the supply.

Bangladesh similarly has a long history of both food and cash based public works programs. Its success in dealing with the chronic floods and cyclones is well known, but lesser known is the fact that public works programs have come to the rescue of households who have been hit by these disasters. Sri Lanka is considering similar interventions for its internally displaced persons.

In response to the food and fuel crisis about eighteen or so months ago, both Nepal and Bangladesh stepped up their coverage of employment generation programs. Bangladesh’s 100 Day Employment Program was evaluated independently by BRAC and the World Bank. The results have been very encouraging, showing reasonably good targeting of the poorest and efficient delivery of the program. Building on the experience of the 100 Day Employment Generation Program the Government of Bangladesh is now implementing the Employment Generation Program for the Poorest (EGPP), a cash-based workfare program.

But Bangladesh’s EGPP is very different from India’s NREGS. While both are based on a long history of implementing public works, yet the India program has a guarantee that entitles individuals to receive compensation if the work they seek is not provided within a certain period. The state has accepted and in fact co-opted an “entitlement approach” that was initially pushed hard by a formidable civil society movement. Citizen monitoring is built into the NREGS design and social audits are mandated twice a year even implementation uneven across states.

Moreover, NREGS is linked to a larger grassroots movement that questions the manner in which in India’s growth has affected the poorest and the high levels of malnutrition that persist despite overall reduction of poverty. A movement that is aided by judicial activism, citizen vigilance and an activist intelligentsia. Bangladesh, despite its renowned NGO movement does not have similar movements that demand accountability from the state.

Why is this?

Maitreyi Bordia Das is Senior Social Protection Specialist in the South Asia Human Development Department at the World Bank in Washington DC. This piece was cross posted from Maitreyi's Blog. Log on to read more of her blog posts.

AI Budget Briefs Series 2010

The Accountability Initiative, Centre for Policy Research is pleased to launch its Budget Briefs Series 2010. The 8 briefs in this series examine trends in social sector allocations and expenditures in the Sarva Shiksha Abhiyan, Mid-day Meal Scheme, National Rural Health Mission, Mahatma Gandhi National Rural Employment Guarantee Act, Water and Sanitation, Food Subsidy, Jawaharlal Nehru National Urban Renewal Mission and the Pradhan Mantri Gram Sadak Yojna.

AI Budget Series: Mahatma Gandhi National Rural Employment Guarantee Scheme (NREGS)

In the first of a 4 - part series on social sector spending in India, the Accountability Initiative in collaboration with Live Mint, looks at expenditure under the Mahatma Gandhi National Rural Employment Guarantee Scheme (MNREGS). For a ready reckoner (image) click here. For a detailed analysis see the article - Rural Economics: How taxpayers' money is (or isn't) being spent.

Social Audits and why they matter?

Yamini Aiyar

In a rather worrying turn of events, the Government of Rajasthan, which in September had unveiled a grand plan to set up a social audit cell to monitor the implementation of the National Rural Employment Guarantee Act (NREGA) in the state, called off a series of social audits that were being undertaken in 16 districts of the state in the last week of November. Newspaper reports (see here) seem to suggest that the state government succumbed to pressure from Sarpanches and Gram Sewaks who had rallied against these audits. This move is a serious blow to efforts to institutionalize social audits in the NREGA and internalize transparency and accountability in our administrative systems. But it also raises important questions. Why do social audits matter? Do they really prevent corruption? And what have they achieved?

Do social audits matter? And do they reduce corruption? There is little hard evidence available to empirically answer this question. What we do know from experiences both in Andhra – which is now the only state to have successfully institutionalized social audits in the country – and across the country where sporadic social audits have been conducted, is that stories of corruption are unearthed. Andhra in its early days of social auditing reported a ‘recovery’ of Rs. 60 lakhs of embezzled funds. This money was physically handed over to NREGA beneficiaries at public meetings that followed the social audits. More recent unconfirmed figures seem to suggest that over 28 crores worth of corruption has been unearthed by the social audits of which about 4 crores has been ‘returned’ (to use social audit lingo). But what happens after? Has this uncovering of corruption and public naming and shaming that follows acted as a disincentive for corruption? The answer isn’t clear. Professor James Manor, a well known political scientist, whose been studying the NREGA in Madhya Pradesh argues that the transparency mechanisms in NREGA, of which social audits are one important element, have made it harder to steal from NREGA than from nearly any other government program. This fact was reiterated to me by a rather ‘honest’ Sarpanch on a recent trip to Madhya Pradesh who said he disliked NREGA precisely because it was difficult to steal from it! But at the same time there are studies that suggest otherwise - and this applies to Andhra as well.

But social audits do much more than reduce corruption. My first encounter with social audits was in 2006 in Andhra Pradesh when curiosity led to me to spend a couple of days with a social audit team. At the end of the two-day audit, a public hearing was organized where the teams and villagers shared their findings and evidence with the government. At least 200 people came to the meeting. The conversation was animated. Many villagers grabbed the mike to register their complaints, some were even shouting at the dais. On the dais were the Program Officer, the Post Officer and other sundry government officials. I don’t speak Telugu and had no idea of what was actually going on but for me this was extraordinary. Most villagers rarely get to see a government officer let alone talk to one (or in this case shout at one). At one point, and after much shouting and commotion, one of the field assistants (the worksite managers in NREGA) who had apparently embezzled some wages was openly fired by the Program Officer. Never before (and never after) had I – let alone the villagers- seen any arm of the Indian government act with such speed! For me this was a fine example of a responsive, accountable government.

A few months later, a former colleague and I undertook to study the effects of these audits and public meetings. The results (for details see link) tell an important story. More than 80 percent of those interviewed said they felt that social audits were a powerful tool to resolve grievances and problems with the government. But more important, almost 90 percent of the beneficiaries said that they felt more powerful and able to influence government officials after social audits. So social audits matter, and not just because they might reduce corruption, but because they can be empowering - they allow the poorest the opportunity to interact and speak to government officials and be heard.

But of course there are larger questions. At a recent social audit in Bhilwara, Rajasthan, while helping with logistics for 2,000 people to go out and conduct the audits, I found my self wondering if this is what it ought to take to make sure that the poorest guy gets his wages? It is hard work and a constant battle… and, really, are we resolving the fundamental, systemic issues that cause corruption in the first place? Perhaps not. But social audits give people information, they induce transparency – people finally get a peek into ‘the government’, they create platforms where people can engage with government and through all this they can (and arguably do) empower people to exercise their rights and that’s why they must be promoted not in one village or one state but all across the country. After all, only an empowered citizenry can demand accountability from the state.

A few years ago I wrote an article arguing that NREGA is not just about guaranteeing employment but also good governance. I had travelled around the country and was struck by the fact that transparency and accountability measures built into the Act have acted as a catalyst for state governments to innovate with measures for accountability. I went to Jharkhand, Andhra, Rajasthan and Tamil Nadu to participate in social audits. And it was not just social audits. The techies began experimenting with biometric identification, bank accounts were opened for beneficiaries – men and women - the list was endless. It seemed then that the NREGA could kick-start at least the beginnings of a revolution in governance. By preventing social audits and changing its mind on the institutionalization process, the government of Rajasthan has set a very dangerous precedent – one that doesn’t bode well for the potential of the NREGA and for the future of governance in India.


Yamini Aiyar is the Director of the Accountability Initiative.