ExplainSpeaking: Urban Employment Guarantee schemes — why, what and how

Dear Readers,

Last week, while presenting the Budget for the next financial year, the Rajasthan government announced the start of the Indira Gandhi Shahri Rozgar Guarantee Yojana. This is essentially an employment guarantee scheme on the lines of the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) albeit for the urban areas. For those who do not know: MGNREGA was started in early 2006 and guarantees to provide 100 days of wage employment for unskilled manual work to each rural household every financial year.

To be sure, with each passing year, more and more Indian state governments are looking favourably towards an urban version of MGNREGA. These include Kerala (Ayyankali Urban Employment Guarantee Scheme), Odisha (Unnati or Urban Wage Employment Initiative), Himachal Pradesh (Mukhya Mantri Shahri Ajeevika Guarantee Yojna or MMSAGY), Madhya Pradesh (Mukhyamantri Yuva Swabhiman Yojana) and Jharkhand (Mukhyamantri Shramik Yojana).

Why is there a growing demand for urban employment guarantee schemes? Should India have one at the national level? Can such a scheme be just an extension of the rural employment guarantee scheme or does it require a different design? Why should governments spend money on an urban scheme when every year there is criticism that the MGNREGA is underfunded? Would it not be better to just expand the coverage and budget allocations of MGNREGA? Would fully-expanded MGNREGA and UEG be fiscally ruinous for India’s government? Should the government be running such a scheme to create public assets or simply expand direct public employment and invest in creating public assets?

WHY are UEGs being demanded now?

India has had a history of urban employment schemes such as the Swarna Jayanti Shahari Rozgar Yojana (SJSRY), which was launched in 1997. It provided employment to the unemployed and underemployed urban poor through self-employment and wage employment. In 2013, the SJSRY was replaced by the National Urban Livelihoods Mission (NULM). But none of them were employment “guarantee” schemes.

Broadly speaking, the need for a scheme providing a guarantee is due to the growing distress among the urban poor, which has remained largely unaddressed for a long time — Covid just made it worse.

There are several reasons for this.

Most unemployment data — be it from the Centre for Monitoring Indian Economy or the government’s own Periodic Labour Force Survey — shows that the unemployment rates are typically higher in urban areas. Add to that the fact that, as this analysis from Crisil revealed, the urban poor are worst affected by India’s persistently high inflation.

“In addition to this, Indian towns and cities continue to be plagued by the prevalence of low-wage, poor quality, informal work. PLFS data show that despite a rise in the prevalence of regular-salaried work, just over 50 per cent of the urban workforce remains either self-employed or in casual wage work,” states the State of Working India (2019) report by the Azim Premji University researchers.

Making matters worse is the fact that most of the government schemes providing relief — be it from the Union government or state — prioritise rural unemployment and poverty. A good example is the existence of MGNREGA. Yet another example is the Prime Minister Garib Kalyan Rojgar Abhiyaan. This was launched on June 20, 2020, with an allocation of Rs 50,000 crore, to boost employment and livelihood opportunities for migrant workers returning to villages in the wake of the Covid outbreak.

Nikhil Dey, one of the main architects of the MGNREGA, says that the National Common Minimum Programme of the Congress-led United Progressive Alliance had talked about both rural and urban employment but as it happened only the rural employment guarantee scheme went through. He believes, like many others, that is time for India to have a national urban employment guarantee (UEG) scheme.

Rajasthan Chief Minister Ashok Gehlot addresses the media after presenting the state Budget. (Photo: PTI)

WHAT should be the design of a UEG? 

On the face of it, most UEGs appear to be a mere extension of MGNREGA to the urban areas.

For instance, Odisha’s scheme, which was launched in April 2020 as a response to the Covid shock, states: “…the government has decided to implement UWEI for enabling the urban poor who are mostly working in the informal sector to get immediate wages by execution of labor-intensive projects.”

According to reports on Himachal’s MMSAGY aims to provide at least 100 days of guaranteed employment to every household in the urban areas. Jharkhand’s scheme, too, provides guaranteed 100 days of wage employment within a financial year. Madhya Pradesh provides a stipend of Rs 4,000 per 30 days for a maximum of 100 days in a financial year. But this stipend is only for those between the ages of 21 and 30 years. Similarly, Kerala’s Ayyankali Urban Employment Guarantee Scheme (AUEGS) “aims at enhancing the livelihood security of people in urban areas by guaranteeing hundred days of wage-employment in a financial year to a urban household”.

But in reality, a UEG cannot be a mere extension of MGNREGA.

For one, rural unemployment is mostly seasonal. During peak farming season, very few rural people may be unemployed. However, during other months, unemployment in rural areas goes up. But there is no such seasonality in urban unemployment.

Similarly, the public works in which the labour is involved are quite different from each other. Another key difference is the capacity of the Panchayati Raj Institutions in rural and urban areas. Urban local bodies are poorly funded and have little capacity to provide help.

So the more fundamental problems in conceptualising a UEG are these: Is it, like MGNREGA, which is aimed at preventing distress migration? If not, then what is it primarily trying to do? Secondly, should the government create these guaranteed jobs or should the government simply give out wage coupons whereby the jobs would be given by a private firm but the coupon holder’s wage comes from the government?

Most of the UEGs mentioned above follow the model where the government has to create the jobs that it is guaranteeing. But Jean Dreze, another person who drafted the MGNREGA, has been writing about a Decentralised Urban Employment and Training or DUET).

In an Ideas for India piece, Dreze explains the basic idea behind DUET: “…state government issues ‘job stamps’ and distributes them to approved institutions – schools, colleges, government departments, health centres, municipalities, neighbourhood associations, urban local bodies, etc. Initially, the approved institutions will be public institutions (private non-profit institutions could be considered later). Each job stamp can be converted into one person-day of work within a specified period, with the approved institution arranging the work and the government paying the wages (statutory minimum) directly to the worker’s account on presentation of job stamps with a due-form work certificate from the employer.”

Further, unlike MGNREGA, DUET proposes to be for both unskilled and skilled workers and, in fact, has a crucial element is to provide “training” or skilling.

Then there are questions of who all can benefit from a UEG? Should UEGs beneficiaries be restricted? For example, should someone who is already enrolled in MGNREGA be allowed to receive benefits under UEG?

Then comes the question about the type of works that will fall under UEG’s ambit. Another key question is the level of payment. If the difference between the rural and urban job guarantees is too wide, it could create perverse incentives for people.

How will a national-level UEG be funded?

Most of the state-level UEGs are backed by very modest Budget allocations. But a national-level UEG would demand a substantial Budget allocation. According to one calculation by researchers at APU published in The Indian Forum, “a UEG programme that covers an estimated 20 million urban casual workers for 100 days, with a wage rate of Rs 300 per day, would cost the union government around Rs 1 lakh crore”. The actual Budget outgo would depend on how many people are covered and what is the guaranteed wage.

Should there be a national UEG?

There are no easy answers.

Before deciding, the first thing to understand is that be it MGNREGA or UEG, both are, first and foremost, an open admission that the Indian economy has not been able to create as many well-paying jobs despite its GDP growing at more than 8% on several occasions in the past two decades.

Of course, that is no reason not to institute such a scheme but it is important not to forget that these are essentially relief measures. Contrary to election time rhetoric, high levels of MGNREGA use or increased disbursal of free or subsidised food grains under the National Food Security Act is not a matter of pride for the country.

The second thing to remember is that while such programmes and schemes start as relief measures, they tend to be quite sticky. It is unlikely that once instituted such a programme will be withdrawn by any future government. The current PM Narendra Modi was one of the bitterest critics of MGNREGA but despite having two back to back majority governments, he has not only allowed MGNREGA to continue but also used it as the main vehicle for alleviating economic distress — be it in the wake of the demonetisation fiasco or the Covid disruptions.

A third, and related, concern is about funding. It often helps provide a different perspective when one adds up all the money spent on MGNREGA over the past 10 or 15 years. Could that amount of money be spent better? Spent towards finding a solution that obviates the need for such relief measures?

Similarly, it is reasonable to ask that if India had an additional Rs 1 lakh crore to spend, why should the policymakers spend it on a new UEG scheme and not simply boost the Budget allocation for MGNREGA. Boosting MGNREGA would, on paper, reduce distress migration and ensure that only when cities create well-paying jobs do people in rural India feel enthused to migrate out.

Newsletter | Click to get the day’s best explainers in your inbox

There can be several counters.

For instance, on funding, it can be asked how revenues foregone towards big companies can be justified at a time when India is suffering from weak aggregate demand. Imagine, for instance, if instead of foregoing Rs 1.5 lakh crore in tax revenues because of a corporate tax cut in 2019, the same money was spent by the government towards boosting the incomes of the urban poor, would that not have helped? The same holds for thousands of crores of Production Linked Incentives being provided to capital intensive industries.

As things stand, each passing year creates another heap of poor and pushes India towards more inequality. The resulting effect — through lower aggregate demand and social unrest — on India’s medium and long-term economic prospects is unlikely to be salutary.

Many point to the “New Deal” offered by President Franklin D. Roosevelt in the 1930s to pull the US out of The Great Depression. FDR’s “New Deal” was essentially a series of large-scale relief programs financed by direct government spending and aimed at boosting aggregate demand while also creating public infrastructure.

Should India see a national UEG as a new deal to recharge the economy or would it be a wasteful expenditure that will threaten to ruin government finances?

Share your views and queries at udit.misra@expressindia.com

Stay safe,

Udit