Tag: nregs

Why Inclusiveness Matters

I want to take examples of two situations from traffic engineering to demonstrate why inclusion is important, and it is critical that everyone be “taken along” in any grand plan. The usual arguments for inclusion that you find from proponents of schemes such as the NREGS is that if you don’t include, people will riot and cause harm to others. What I want to show is that even if people have non-violent non-disruptive benign intentions, non-inclusion can lead to disaster for the society at large.

My current workplace is at Embassy Golf Links on Inner Ring Road (between Koramangala and Domlur). Approaching from the Koramangala side, one needs to take a u-turn at the old airport road in order to access the complex. And the story of my first two weeks in office has been that it takes 25 minutes to get from home to the other side of the road, and another 25 minutes to take the U-turn and get on the right side of the road. Some quick and dirty analysis of the bottlenecks tells me that the problem is not with the design of the Airport Road flyover (as many would suspect). It’s much simpler.

A common error in traffic planning is that the planners fail to take into account pedestrians. Pedestrians are not counted as “traffic” and are assumed to somehow get on with their lives while the cars and bikes zip by or crawl in the traffic. Because of this, not enough facilities are made for pedestrians – for them to walk, for them to cross the road, etc. thus forcing jaywalking.

If you look at the area on inner ring road around the airport road flyover, you will notice that the biggest problem is pedestrians. No, pedestrians are not a problem, the problem is lack of facilities for pedestrians which forces them  to jaywalk. So every handful of metres on the road, you’ll notice a handful of pedestrians holding across their arms and trying to wade through the traffic, thus significantly slowing down the traffic. It is because these pedestrians were not included in the original traffic plan that the whole system has failed. So we see that even though the pedestrians mean no harm to others, they are inadvertently causing harm to society at large. And it’s still not too late – a couple of overhead crossing bridges can be installed which should make life peaceful again.

Coming to the second issue – public transport. Last monday the Vijaya Karnataka had done a feature on the Bangalore Metropolitan Transport Corporation (BMTC) and had carried out a scathing attack for not doing enough for the common man. I just skimmed through the article and the central idea was that public transport is essentially meant for the poor and downtrodden who can’t access any other kind of transport, and so the BMTC’s focus on higher-end buses (Vajra and Suvarna) is doing a lot of harm for the mango person who still has to go in highly crowded buses.

What the writer of the article fails to notice, or chooses not to notice, is the substitution effect. Give a poor man a comfortable bus, and you will take one cycle or scooter off the road. Give the rich man a seat in a comfortable bus, and you will take a car off the road. And taking cars off the road means that everyone now gets to travel faster – both the remaining cars as well as the buses – carrying both the rich and poor. Thus it is probably more pareto-optimal to put an extra high-end bus on the road rather than an ordinary bus (though of course we need enough of the latter).

One major bane of public transport planning in India (and abroad) has been the assumption that public transport is for the poor, and excluding the rich out of the equation. Not finding decent public transport option, the rich has thus gravitated to using one-passenger cars which have had a disastrous effect on traffic in general. And it is only now that cities are taking an inclusive approach and planning public transport for everyone, and you see various cities putting in place high-end buses. Given the secular growth in cities and in traffic, it is probably not possible for us to do an analysis as to what would’ve happened without high-end buses, but I’m sure we are better off with these rather than without these.

So the moral of the story is that when you are planning (regardless of whether you are the government, or a corporate, or the head of a family), you will need to take into account all possible stakeholders, including those outside the system being designed. Only then will the design be efficient.

The impact of Rs. 2/kg rice

In the supplement of yesterday’s The New Indian Express (one of the six articles is here: http://epaper.expressbuzz.com/NE/NE/2009/07/12/ArticleHtmls/12_07_2009_412_002.shtml?Mode=1), it was argued about how the combination of NREGS and cheap rice (most states provide or promise to provide 25 kg of rice per month per poor family at Rs. 2 per kg) is destroying the rural economy.

One day of work under the NREGS gives a person Rs. 100. Half of that will go into buying rice for his family for the ENTIRE MONTH. Extending this argument, twelve days of work under the NREGS will feed his family for the whole year. Given that the staple is taken care of,, there is little incentive for the villager to work to earn more. And so there is a severe shortage of farm labourers, other rural workers, etc.

When the NREGS  came about, some people applauded it saying that it would ensure that minimum wage laws would now be met. Given that people were now assured of a certain sum (say Rs. 100 per day) for doing meaningless stuff like digging and filling holes, they would go to do other harder and more meaningful work only if they were paid more (and you need to take into account that “real work” takes more discipline, hard work, etc. than it takes to wrok for a welfare program – so the NREGS actually pushed up the minimum wage for farm labour to much higher than Rs. 100).

Now, with various states coming up with cheap rice schemes, the whole thing has gone topsy turvy. Given the subsidized rice, it is now possible for the worker to earn enough for his staple food by just doing a few days of work under the NREGS! The only need for him to work elsewhere, and possibly harder, is to pay for his “luxuries” (considering the price of subsidized rice, requirements and NREGS pay, it can be shown that 100 days of NREGS work can pay for all the essentials).

Given that the essentials are taken care of by the combination of NREGS and cheap rice, the only reason that the worker will need to do actual (i.e. non-NREGS) is to help him save, or for “luxuries”. Yes, some workers will have special needs for money at different points of time because of which they will take on the extra work, but if you aggregate the supply of work, you will realize that the ‘hurdle daily rate’ for the worker to accept “real work” becomes really high.

Since the worker doesn’t absolutely need the money, he can now become the price-setter in the job market rather than being a price-taker. So what this effectively does is to push the “minimum non-NREGS wage” really high indeed (I can’t intuitively put a number on it, but it could be as much as Rs. 200). My bet is that a lot of rural-economy-produced goods will turn out to be really expensive next year since a lot of producers might choose not to produce them given the high cost of labour.

Quite a few commentators have said that the NREGS is a noble scheme for empowering the poor, and given that most of the ‘work’ done is meaningless, it can be replaced by simple cash transfers. The problem is that if that is combined with yet another welfare measure such as cheap rice, it can create severe distortions in the market.

The moral of the story is that if you want to help the poor, please go ahead and do so. What you shouldn’t do is to help them twice over – that can result in severe market distortions like the one that the express article talks about. What is needed is greater coordination between the centre and the states in the welfare measures.