Dear Rahul Gandhi

This is the 36th installment of my weekly column for Mint, Thinking it Through.

Dear Rahul

Congratulations on your recent elevation as general secretary of the Congress party. Yes, I know, it was just a formality, and there’s more to come. Still, it’s a start, and one that you used to make a statement.

Shortly after getting this post, you took a delegation to Manmohan Singh and asked for the National Rural Employment Guarantee Scheme (NREGS) to be extended to all 593 districts of this country. A couple of days later, the Prime Minister announced that extension. With this, you demonstrated your clout in the party, and you also made a gesture of commitment towards the poor people of this country.

I have a question, though. Have you had a chance to look at the reports evaluating the NREGS that have been released recently? One of them, by the Society for Participatory Research in Asia, found that just 6% of the households registered under the scheme actually got 100 days of employment in 2006-07. Another, carried out by the Centre of Environment and Food Security (CEFS) a few months ago, is even more worrying.

“(A)bout 75% of the (NREGS) funds spent in Orissa have been siphoned and pocketed by the government officials,” it reports, “and this loot has been very participatory and organized.” The CEFS could not find “a single case where entries in the job cards are correct and match with the actual number of workdays physically verified with the villagers”. The report concludes: “(O)ut of Rs733 crore spent in Orissa during 2006-7, more than Rs500 crore has been siphoned and pocketed by the government officials of executing agencies.”

These figures are astonishing, for one-third of the money has not been reported as siphoned off. As your father, Rajiv Gandhi, once remarked, only about 15% of government spending on the poor reaches the intended beneficiary. India’s chief justice, K.G. Balakrishnan, recently spoke out against the Public Distribution System, saying that in some states, “not a single grain reaches the common man”.

A common reaction to these findings would be: “Oh, the programmes are OK, it’s the implementation that has been faulty. We just need to fix that, and all will be well.” But Rahul, surely you know that these are not aberrations that can be sorted out with a committee here and an inquiry panel there. This corruption is written into the system itself.

It is in the nature of government to want to increase its power, influence and budgets. This is exacerbated when government servants are unaccountable and tenured, as they effectively are in India. Government servants, like other rational human beings, look to their self-interest first. All their incentives are tailored towards misuse of power, with no safeguards built into the system against it.

Even if you could magically transform every bureaucrat in India into a paragon of honesty, a scheme like the NREGS would still be a mistake. That is because the scheme has a cost: The money spent on it doesn’t come from the heavens, but from your maidservant and your driver and millions of poor people in this country, who may never file returns, but are constantly assailed by hidden taxes.

Leave aside the many ways in which you could spend this money better: solving India’s power shortage, building roads to connect India’s hinterlands so that smaller urban centres can take the load off the big cities, and so on. If you just leave this money with the taxpayers to begin with, they will put it to more productive use than an unaccountable government spending someone else’s money. Also, individuals will have more incentives to work hard if they are taxed less, and businesses will have more resources available for expansion, all of which benefits the economy, raises productivity and creates jobs.

Indeed, if it’s employment you really want to provide, the best way to do so would be to remove the barriers to private enterprise that exist in this country. Put an end to the licence and inspection raj, reform our labour laws, abolish the laws that agricultural land can only be used for agricultural purposes, remove the restrictions on many goods being manufactured by anyone other than “small scale units”, and welcome foreign investment. All of these will provide far more employment than the well-intentioned but ill-conceived NREGS.

Rahul, in the same breath that the media acknowledges you as a future leader of this country, it mocks you for having nothing but your family name as your qualification. Prove us wrong. Reject received wisdom, learn from the lessons of the past 60 years, and convince your party that the key to India’s prosperity lies not in the actions of its government, but in the enterprise of its people. Set them free.

All the best.


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Also read: My WSJA Op-ED on the subject that appeared today, How Not to Help India’s Rural Poor.

My Op-Ed from two years ago: Good Intentions, Bad Ideas.

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My thanks to Prem Panicker, fellow Warrior Against Wastage, for sending me the reports referred to in this piece.

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You can browse through all my columns for Mint in my Thinking it Through archives.