Multiplier Effect of MGNREGA-induced Inflow of Money

The core objective of the Mahatma Gandhi National Rural Employment Guarantee Act is to promote rural development and reduce poverty by supplementing private employment in the rural Indian economy with public employment. This paper is an attempt to verify the performance of MGNREGA by studying four sample villages from West Bengal. The study has built a social accounting matrix from which the output and employment multipliers for each village are computed. However, it shows the demand-side impact, whereas the realisation of MGNREGA’s potential positive multiplier effect depends on supply-side support, which is lacking in the villages. The paper, therefore, suggests supply-side initiatives in MGNREGA through a focus on productivity enhancement measures.

Given the severity of poverty in the country, the Government of India has introduced several direct and indirect poverty alleviation programmes through different centrally sponsored schemes (CSS). Since the poor live predominantly in the rural areas and depend mainly on agriculture, achieving the goal of poverty reduction depends on the growth of agriculture. To achieve more than 3% reduction rate of rural poverty per annum, it is essential that agriculture grows annually at 4% to 5%, especially in the regions with a high concentration of poor (Parikh and Radhakrishna 2005). Since such high agricultural growth rates are not consistent, supplementary rural support programme is found necessary. Against this backdrop, the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) was framed and introduced in 2005 under the United Progressive Alliance (UPA) government to provide public employment opportunity to the rural unemployed. This programme was expected to improve agricultural productivity by developing the rural infrastructure and also combat poverty in the process. It was a short-term employment programme to generate income, and help consumption smoothing for poor households during the lean agricultural seasons.

The prospect of income growth and shift in demand patterns among households after the introduction of MGNREGA has triggered a new interest in an analysis of intersectoral linkages in the rural economy. The demand for non-farm services such as transport, education, hair-cutting, carpentry, etc, will increase with direct (MGNREGA participation) and indirect (increased farm production with improved rural infrastructure) increase in income. Hence, the MGNREGA was expected to strengthen the linkages between agriculture and the rural non-farm sector considerably (Saikia 2009). An analysis of sectoral linkages using the Social Accounting Matrix (SAM)-based multipliers has become popular due to its ability to measure the overall impact, unlike linkage measures provided by the conventional input–output matrix. In this paper, we evaluate the impact of employment guarantee programme on households in a SAM framework. While similar studies have been done in the past, none of them considered the impact of employment guarantee programme with detailed micro-level analyses (McDonald and Punt 2003; Thurlow 2002). The present study proposes to determine the multiplier effect of MGNREGA on the basis of the calculated SAM with respect to the four surveyed villages, along with a comparative analysis.