Toutsourcing -The Flat World Way
By Ram Krishnaswamy (alumnus–IIT Madras) & Vickram Crishna (alumnus-IIT Delhi)
MGNREGA, or the Mahatma Gandhi National Rural Employment Guarantee Act, is the empowering legislation for an Indian job guarantee scheme - ‘NREGS’, envisioned as the world’s most ambitious social security programme. Legislated in 2005, it guarantees a minimum of a hundred days of manual work per annum, for a wage of Rs100 per day, for every adult living in rural communities willing to do manual work, irrespective of financial or any other status. The central government’s outlay for this scheme is Rs 40,000 crores this year, or about US$ 9 Billion.
It is the brain child of Dr Jean Dreze, a Belgian born economist, now teaching at Allahabad University, also a member of the country's top-level National Advisory Council. State Governments implement the scheme on a cost sharing basis, between the centre and each state.
The magic about NREGS is that every adult willing to do physical work is guaranteed a minimum of 100 days work at Rs100 a day. This is a fair guarantee of an income of Rs10,000 per annum per household. At first glance, it is definitely a laudable scheme, with work provided right in the same villages, at the doorstep of the targeted rural population, with the hope that this will reduce the near perennial migration of the rural population to cities, seeking work in lean periods.
It is akin to the “work for the dole” scheme created by the John Howard Liberal government of Australia. In Australia, the government and public were not happy seeing taxpayers’ money going as unemployment benefits to Australians who often do not want to work in the first place, and guaranteed work for pay is expectedly a far more amenable solution, for those who lack the heart to see the world as it is.
Pitfalls: It is likely that the scope of schemes under the NREGA could expand to cost the centre as much as 5% of the GDP annually, which is a lot more than initial predictions, but even so will hardly be the biggest chunk of the budget. Unfortunately, it does not matter how good and noble a scheme,the government designs to lift the population from its condition of chronic poverty for one way or another, loopholes get exploited. Indeed, sometimes loopholes are crafted precisely for the purpose and money meant to reach the poor and needy gets diverted by administrators down the line.
Some of the pitfalls observed in NREGS are, as per the quoted Wikipage:
· Projects are standardised, and not suited to the local community needs
· In some regions, some sections of the community are kept out of projects
· Excess job cards are issued to claim bogus payments for work not done
· People are forced to pay bribes of up to Rs 50 to get job cards
· NREGS job cards have been issued to people already employed otherwise, in order to make bogus claims.
· In every state there is a scam of a different kind, showing the ingenuity of the corrupt babus
The issues in implementing NREGA are to be expected, when we also accept that the Indian public distribution system - PDS - fails to deliver even a small percentage of the total budget to the deserving. If 25% of designated food grains reach the poor we are lucky. PDS grains are sold interstate, exported, get sold to people with bogus ration cards, and quotas not availed by the poor - who cannot afford a full month’s rations - get sold in the open market at a higher price.
Some consolation here is at least someone gets to eat these grains and someone’s belly gets filled, but the effect on free market operations need hardly be guessed. The real impact is seen in the inability to control runaway prices. What is most disheartening with food management under the PDS is that grains are stored in the open, under tarpaulins, and inevitably the losses due to rotting are unconscionably high.
Memories of Things to Come: My memory flits back to 1974, when a spiteful PA (personal assistant) to a Chief Engineer, who disliked me, transferred me to the Rameswaram Pamban Bridge construction site as a punishment. My experience at Rameswaram as a Junior Engineer reminds me of the current stew in NREGS.
When I arrived at Rameswaram, and even before I joined duty officially, the Assistant Engineer I was to report to asked me to sign off a bill for Rs 87,000. This bill was supposedly the cost of demolishing a house that was plumb on the proposed approach roads to the Pamban Bridge. Fortune favoured me, and I was pretty alert and astute. I said I was not going to sign and approve any bill for work that I had not executed, and told the AE to do it himself.
So my troubles started even before I joined work.
A week into the job, familiarising myself with the work site as well as the locals in the fishing village, I figured out that no house had been demolished. Clearly, the bill was a fake, set up to trap me. Had I been trusting, and put my signature on the document, my Divisional and Assistant Engineers would have bullied me, blackmailed me and forced me to go on endorsing their corrupt practices. Similarly, fake bills of works are presented to the center via the states implementing NREGS, and the moneys are pocketed.
Later on, at the job site, I needed to hire workers to build the approach roads, and to bring sand from the dunes by tipper trucks. Local subcontractors arranged for the labourers. They submitted bills of quantity for the labour supplied to get the job done, and payment made.
As I was on site from 6.00am to 3.30pm every day, I had no problem verifying the head count to approve these bills for good honest work under the sun. As an engineer my interest was in getting the work done. But then, for the payments, these bills had to be countersigned by my AE and my DE, and then it was up to the Divisional Accountant to present the bill to the treasury, collect the amounts and pay the subcontractors. This web of associates deliberately delayed the process, expecting the subcontractors would pay to speed it up. The subcontractors were straightforward people, wanting payment for work done, refused to pay any bribes, and came daily to meet the AE and DE.
One day, on my way back from work, I was stopped by two local thugs who put a knife to my throat. They threatened me that if I did not cooperate, they would kill me and throw my body to the sharks. It was clear that these thugs had been hired by my own senior engineers to soften me up.
I chose not to be a martyr (unlike Satyendra Dubey, who was murdered by corrupt engineers and contractors of the National Highways Authority, after he blew the whistle in a letter to the Prime Minister). I reported the matter to the Chief Engineer, not that he could or would do anything. I then packed my bags and ran back to Madras, and kept running until I landed in Sydney. I had to live, to fight another day. - Ram Krishnaswamy
Toutsourcing: NREGS has such a huge budget - Rs 40,000 crores - that thousands of crooks rub their hands at this golden opportunity to swindle public money, without any qualms.
Now let us put ourselves into the shoes of a labour subcontractor working for NREGS on a project, for which (as an example) 500 labourers are required to work for 30 days, five days a week. When the word gets around, there are around 5,000 villagers who want the work. With such a huge demand, his power and authority grows.
He sends the word around that any one who wants to work for a full week (5 working days) will have to pay a commission of 20% (of Rs 100 per day) of the weekly wage, and which, from 500 labourers, totals Rs 50,000 per week, or 2,00,000 per month. But that isn’t all.
Those keen on signing up for a full month's work, 20 working days, have to pay him a commission of 25%. If he signs up all 500 labourers for the full month’s work, he gets to skim Rs 2,50,000. Doing less work actually earns him more!
Then we have the materials cost for the project, and it is so easy to fudge and create receipts for materials that never got supplied; it is also easy to supply the same materials over and over again, when the supervisors are sharing the loot.
NREGS thus encountered massive problems when cash money was being handled. Many labourers are being short-changed, especially women, who often get paid (quite illegally) only 50% of the men’s wages.
It was decided to make payments only to bank accounts of individual labourers, from 2008.When this change came about, it made it easier to claim and have payments made to ‘family and friends’ who never worked a day on the field, for the simple reason that most poverty-stricken persons (both urban and rural) in India do not actually have bank accounts, hence must make alternate arrangements. Even if payments go to the people who actually worked, they will be forced to hand over the 25% commissioning amount every week, before they can set foot on the work site the following week.
Thus, conditions have been created within which touts find gainful employment, intervening in the delivery of public money, in cash or kind, to both those living in abject poverty, as well as those able and willing to do an honest day's work.
The modern corporate sector has a striking similarity, but with one big difference. Many large corporations, and quasi-corporatised government bodies in the western world, are not keen on engaging too many full time employees. They employ contractors to minimise overheads, and to avoid the complications and additional expenses of holiday pay, maternity leave, superannuation etc.
Assume the client is willing to pay an hourly rate of $150 for example, and contracts with a recruitment agency to provide the necessary workforce. The recruitment consultants interview many candidates and shortlists about 5, and allows the client to choose their final candidate. The agency then negotiates hard with the candidates, selecting one who is desperate to get the job in these trying circumstances, and agrees to accept a $50 hourly rate.
At 40 hours a week, and 50 weeks a year, the employee works 2,000 hours, and gets paid $100,000 for the year (before tax). The recruitment consultant clears $200,000 for ‘helping out’!
Far from getting labeled as ‘crooks’, ‘touts’ or ‘middlemen’, such body shopping businesses are so successful, they become MNCs in their own right, with thousands of employees executing back-office work in a third world country such as India. Renowned names, like Infosys (Mphasis), TCS, Wipro, Satyam and HCL, etc., are little different from touts who find labour for NREGS projects, although the term does not find mention in mainstream media reports.
No Aadhaar, no UID, no mandating direct payments via banks etc., can solve the systemic problems in implementing the MGNREGA. When an institution has a systemic problem, it should seek remedies from those who will be responsible to carry them out, the people who are involved hands-on. Instead, the modern day management ‘solution’ is to appoint external consultants, who ‘design’ high tech interventions that enable flawed systems to limp on for years.
We live in a world of double standards. It is always one rule for the rich and another for the poor, and the rule for the poor is made by the rich.
Brand (and other) Names: Having written this, a strange thought comes to my mind. A labour contractor to NREGA who demands a commission from the labourers is no less or more a tout than an expensively branded 'consultant' who extracts undue value by intervening in the value chain between well-paid intellectual workers and end-users of their intellectual outputs.
When NIKE makes cheap shoes in Thailand for $10 a pair, and sells the same shoes for $150 a pair, the world screams foul, and condemns such businesses as sweatshops. Is India’s IT Industry any different, selling out intellectual growth in the haste to exploit cheap labour?
If this is not so, then why have the majority of UIDAI’s IT contracts been awarded to US companies?
The creation of UIDAI, to issue identification numbers to 600 million people, at a cost that may climb to Rs 1.5 lakh crores by 2015, is an eerily precise parallel to the rot in NREGA and the exploitative runaway phenomenon called outsourcing. It boggles the mind to believe that the nation needs consultants (in case after case, foreign brand name consultants, like Ernst ‘Derivatives’ & Young and ‘Enron’ Accenture) to kill this cancer called corruption. It is a very piquant twist to the global culture of homogenisation implicit in the 'Flat World' hypothesis.
They say Nandan Nilekani is a good, honest and honourable man. Indeed, he was complimented in a recent interview by Flat World guru Thomas Friedman.
The question is, if the main reason for UIDAI and Aadhaar is to fix the corruption in PDS and NREGA, why doesn't he ask Prof Jean Dreze, Reetika Khera, Aruna Roy - or even meet, for that matter, concerned IIT alumni or with the National Advisory Council ? It is, after all, the nation’s premier and overarching sounding board, headed by Mrs.Sonia Gandhi, meant to be above party politics. But if they, too, have doubts about the way UID is being steamrollered, perhaps they are now reduced to being ‘activists’, unworthy of the attention of good, honest and honourable men.
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Notes:
Mahatma Gandhi National Rural Employment Guarantee Act: The MGNREGA is an Indian job guarantee scheme, enacted by legislation on August 25, 2005. The scheme provides a legal guarantee for one hundred days of employment in every financial year to adult members of any rural household willing to do public work - related unskilled manual work at the statutory minimum wage of 100 (US$ 2.27) per day. The Central government outlay for scheme is Rs 40,000 crore (US$ 9.08 billion) in FY 2010-11. [1]
This Act was introduced with an aim of improving the purchasing power of the rural people, primarily semi- or unskilled work to people living in rural India, whether or not they are below the poverty line. Around one-third of the stipulated work force is women. The government is planning to open a call center, which upon becoming operational can be approached on the toll-free number, 1800-345-22-44.[2] It was initially called the National Rural Employment Guarantee Act (NREGA) but was renamed on 2 October 2009.[3]
The Act was brought about by the UPA coalition government, supported by the left parties. The promise of this project is considered by many to be one of the major reasons for the re-election of the UPA in the Indian general election, 2009. Dr. Jean Drèze, a Belgian born economist, at the Delhi School of Economics, has been a major influence on this project.[4]
The Act directs state governments to implement MGNREGA "schemes". Under the MGNREGA, the Central Government meets the cost towards the payment of wage, 3/4 of material cost and some percentage of the administrative cost. State Governments meet the cost of unemployment allowance, 1/4 of material cost and the administrative cost of the State council. Since the State Governments bear the cost of the unemployment allowance, they are heavily incentivized to offer employment to workers.
However, it is up to the State Government to decide the amount of unemployment allowance, subject to the stipulation that it not be less than 1/4th the minimum wage for the first 30 days, and not less than 1/2 the minimum wage thereafter. 100 days of employment (or unemployment allowance) per household must be provided to able and willing workers every financial year.
Criticisms
Many criticisms have been levelled at the programme, which has been argued to be no more effective than other poverty reduction programmes in India, with key exceptions such as Rajasthan [7].
The first criticism is financial. The MGNREGA is one of the largest initiatives of its kind in the world[7]. The National Budget for the financial year 2006-2007 was Rs 113 billion (about US$2.5bn and almost 0.3% of GDP) and now fully operational, it costs Rs. 391 billion in financial year 2009-2010[7]. Funding was argued, by Jean Dreze and others, to be possible through improved tax administration and reforms, yet the tax-GDP ratio has actually been falling[7]. There are fears the programme will end up costing 5% of GDP[7].
Another important criticism is that the public works schemes' completed product (e.g. water conservation, land development, afforestation, provision of irrigation systems, construction of roads, or flood control) is vulnerable to being taken by over wealthier sections of society[7]. A monitoring study of NREGS in Madhya Pradesh showed the types of activities undertaken were more or less standardised across villages, suggesting little local consultation[7].
Further concerns include the fact that local government corruption leads to the exclusion of specific sections of society[7]. Local governments have also been found to claim more people have received job cards than people who actual work in order to generate more funds than needed, to be then embezzled by local officials[7]. Bribes as high as Rs 50 are paid in order to receive the job cards[7].
A multi-crore fraud has also been suspected where many people have been issued the NREGA card who are either employed with another Government organisation, or who are not even aware that they have a Job Card. In Gujarat, a scam of Rs 10 million has taken place[8].
Budgeted expenses: The Budget for the current period is here (pdf), and it shows that expenditure planned for defense (Rs 175kCr) exceeds 15 % of the total (Center items only: States may vary expenses under these heads differently, or not be obliged to spend on certain items at all) of just over Rs 1,000kCr. In comparison, direct expenditures in staving off malnutrition and its long term impact on human potential for the country are far lesser, never mind increasing the country's potential growth through education, and creating opportunities for gainful employment through industry and infrastructure. This is despite the fact that even at a appallingly low cut off point used as a definition of the 'poverty line', well over two thirds of the country's people are feared to be caught in a state of chronic poverty.
