The Economic and Political Weekly December 18, 2004
JOB LAW CAN SHARPLY CUT POVERTY THIS DECADE A rural employment guarantee programme will yield immense benefits. Labour-intensity can be high in watershed development, land regeneration, and prevention of soil erosion. A jobs programme that focuses on such work would not only protect the environment, it would enhance land productivity and promote rural employment in the future. Such a plan would also have positive second-round effects on household incomes, by raising agricultural wages and investment in human capital. Besides, improving watershed development could reduce damage to life and property caused by frequent flooding. To argue against the employment guarantee is therefore being penny wise and pound foolish. Santosh Mehrotra The goal of halving poverty in the world by 2015 agreed at a world summit at the United Nations in 2000 is unlikely to be achieved, as two UN reports - one by the Food and Agricultural Organisation, noting that the number of hungry people is rising, and another by the International Labour Organisation - warned this week. The only reason why globally there has been some progress on this goal so far is because China and India have succeeded in increasing economic growth rates and reducing poverty - as the Human Development Report noted last year. China has had such significant growth and poverty reduction in the recent past that progress in poverty reduction will be much slower in the coming decade. However, if India fails to make serious inroads against poverty, the one goal of the many Millennium Development Goals on which the world seems on track, will also not be achieved. One of the most important ways in which India's growth experience in the last two decades contrasts with China's is that China managed to increase employment rapidly - mostly in manufacturing and construction. Industrial employment accounts for 22 per cent of China'a labour force, compared to 16 per cent in India (2000). China's poverty declined dramatically in the first decade after economic reforms because of expanding township and village enterprises (TVEs), which absorbed surplus labour in rural areas. While in 1978 just under one-third of all manufacturing employment took place in the countryside, by 2000 this had risen to half [Mehrotra 2004]. India's situation has to be contrasted with that of China. Despite rapid growth and increases in income inequality in both, in China poverty declined to barely 30-40 million people, average incomes rose, and education levels and life expectancy rose to levels much higher than India's. Hence, rising income inequalities in the two does not make their social situation comparable. Although India managed to reduce poverty in the 1990s, increasing inequality could lead to serious social tensions and urban turbulence - frightening away investors, just as foreign investment has begun to climb. Only employment-intensive growth will ensure that poverty will decline and inequality does not increase. However, the employment-elasticity of manufacturing has fallen sharply in the 1990s. The only reason employment has been growing as rapidly as the labour force is on account of growth in services. But that has left the majority of those dependent upon India's slow-growing agriculture behind - particularly as crop production growth has slowed in the 1990s. The Employment Guarantee Agriculture still accounts for 59 per cent of total employment in India. While in the medium-run, transfer of labour out of agriculture will be necessary, direct action by the government could dramatically reduce rural poverty in India within the next five years. The UPA government is to shortly introduce a bill providing an annual minimum guarantee of employment to poor households. The original proposal would have given a statutory right to 100 days a year of employment at the minimum wage in each state to one person from every household. The new draft, unfortunately, removes the statutory right and contains no time horizon for the scheme to cover the entire country. It will initially cover the 150 poorest districts in the country. In a low income country, the poor cannot afford to be unemployed; most of the poor in India are the working poor. Most poor families are in casual employment or self-employed, while those with regular employment are least likely to be poor. What the employment guarantee act will do is ensure at least 100 days a year of regular employment to the poor - eliminating a basis of poverty. On the basis of a population-weighted average minimum wage of Rs 60 per day, 100 days work will raise incomes by Rs 6,000 a year for poor households. That could potentially raise two-thirds of India's population of poor above the poverty line. The Costs How much will it cost the national exchequer? Dreze (2004) has estimated that the total cost of the programme with phased implementation will rise from 0.5 per cent of GDP in the first year (2005), at 2004 prices, to 1 per cent of GDP in the last year of the inception phase (2008). Thereafter, the ratio will decrease, as the number of households below the poverty line decreases. The scheme, and these costs, are modelled on a similar scheme which has been implemented successfully for 20 years in Maharashtra state. But the preceding calculations assume a labour-material ratio of 60:40. The corresponding ratio is much lower in Maharashtra, and unit costs could come down with more labour- intensity. The Benefits In fact, labour-intensity can be high in such work as watershed development, land regeneration, and prevention of soil erosion. This would not only protect the environment, it would enhance land productivity and promote rural employment in the future. Such a plan would have positive second-round effects on household incomes, by raising agricultural wages and investment in human capital. One of the major reasons that the children of poor parents drop out of school is because the parents cannot afford the direct and indirect costs of schooling; raising family incomes would reduce school dropouts. Add to this the increase in land productivity - together these can have profound economic growth effects. Besides, improving watershed development could reduce damage to life and property caused by frequent flooding, and save future costs in government flood relief. To argue against the employment guarantee is being penny wise and pound foolish. Besides, India has to raise its tax to GDP ratio. Compared to central tax revenues for low-income countries of 14.1 per cent of GDP over 1990-2001, India's centre collected in 2001-02 barely 8.2 per cent and in 2003-04 only 9.3 per cent of GDP. Compare that to nearly 22 per cent in China in 2003. Besides, the tax-revenue ratio to GDP rises with rising income: it is 18.5 per cent for lower-middle income countries, and 23.1 per cent for upper-middle income countries [IMF 2004]. Despite rising incomes in India, the ratio of central taxes to GDP has actually fallen from 10.6 per cent in 1987/88 to 9.3 per cent now [GoI 2003]. Just raising the central government's tax to GDP ratio to its late 1980s level would more than pay for the employment guarantee act. Labour Absorption in the Long Run The implementation of the bill would not obviate the need for transfer of labour out of agriculture, where the structure of employment is such that few have regular employment; most are self-employed or casual labourers. It is necessary that much of the new regular wage jobs are for low-skilled workers, since casual workers have only 1.8 years and self-employed only 3.7 years of education; by contrast, regular employees have 7.8 years of education [Ghose 2004]. This implies a growth strategy based on exports of manufactures, but also production of low-skill intensity goods for the huge and growing domestic market. But given the large numbers involved, even a fast transfer out of agriculture will not pull up all the working poor out of poverty. Hence, direct employment creation through the employment guarantee act is an essential component of policy. Besides, the maximum attainable share of industry in total employment in late industrialisers is lower than what it was in the now industrialised countries at their manufacturing peak. In the UK it was 55 per cent (1901), in Japan 37 per cent (1973) and in Korea 33 per cent (1994). In China it is 22 per cent (2000) and in India 16 per cent [Ghose 2004]. Late industrialisers borrow technology from early industrialisers, and the labour-intensity of technology always declines with time. Hence, regular wage employment in total employment will not rise significantly. Thus the share of self-employment will perforce remain significant into the foreseeable future in most developing countries, including India. This underlines even further the need for reducing the scope of casual labour, and hence the need for an employment guarantee as now being discussed in India. It is estimated that a time bound statutory guarantee of employment to the poor would ensure that two-thirds of poor households in rural India would be able to cross the poverty line with an additional income of Rs 6,000 per year. Ensuring Transparency in Use of Funds Critics have argued that the act would expand opportunity for bureaucratic corruption. However, is that it has been demonstrated in cases around the country that effective monitoring by the community of government spending is not only possible, it is effective. Ensuring such effective monitoring requires: the right to information and social audits. Right to information laws have been enacted by several states such as Delhi, Rajasthan, Tamil Nadu, Karnataka, Maharashtra and Goa and some states like Madhya Pradesh and Uttar Pradesh have passed executive orders for providing access to information. A significant achievement has also been the Freedom of Information (FOI) Act of the government of India in January 2003 [NCPRI 2004]. It empowers every citizen with the right to obtain information from the government. And civil society organisations like the MKSS have demonstrated in Delhi and Rajasthan how social audits can bring bureaucratic corruption to heal, armed with the right to information. Hence, the critics risk being perceived as raising a red herring. Notes [The views expressed here are personal and cannot be attributed to the organisation with which the writer is associated.] References Dreze, J (2004): 'Financial Implications of an Employment Guarantee Act: Preliminary Estimates', mimeo, National Advisory Council, New Delhi. Ghose, A (2004): 'The Employment Challenge in India', Economic and Political Weekly, November 27. GoI (2003): The Tenth Five Year Plan, Vol 1, Government of India, New Delhi. IMF, Global Monitoring Report 2004, International Monetary Fund, Washington, DC. Mehrotra, S (2004): 'China: UN Country Common Assessment', Draft, Beijing. NCPRI (2004): 'National Campaign for People's Right to Information', www.righttoinformation.info, accessed December 11. _________________________________ Labour Notes South Asia (LNSA): An informal archive and mailing list for trade unionists and labour activists based in or working on South asia. LNSA Mailing List: Labour Notes South Asia To subscribe send a blank message to: <[EMAIL PROTECTED]> LNSA Web site: groups.yahoo.com/group/lnsa/ Run by The South Asia Citizens Web www.sacw.net _________________________________ ------------------------ Yahoo! Groups Sponsor --------------------~--> $4.98 domain names from Yahoo!. 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