With the upcoming Union Budget, once again there have been discussions over the rural employment guarantee Act be extended to urban areas after a parliamentary standing committee put forth its recommendation to the Union government.

The main arguments favouring such a scheme are to revive the economy, especially in the wake of the COVID-19 crisis, subsequent lockdowns, and reverse migration. Experts call it a ‘safety-net’ to bring the urban poor out of the poverty, and unemployment trap. The scheme is intended to help the urban poor, but needs to be thought of, and approached differently than the rural employment scheme.

Raghuram Rajan, former Reserve Bank of India governor, hinted last year at the need for such a scheme to alleviate the extreme poverty that people face due to the subsequent lockdowns. Even Jean Dreze had provided a detailed outline of such a scheme through DUET (Decentralised Urban Employment and Training).

However, there are many aspects to the urban employment guarantee that need better focus if the government has to come up with such a scheme.

‘Reverse’ Migration

The first aspect is the constant migration from rural to urban areas, which was hit during the first lockdown in 2020. According to the Economic Survey 2016-17, about 90 million people migrated from rural to urban areas annually over the previous five years. However, the COVID-19 lockdowns in 2020, and 2021 reversed this trend as many semi-skilled and unskilled workers, mostly from the informal sector, as well as daily wage labourers employed in construction activities and hospitality, had to leave their jobs, and walk back to their homes in rural areas.

The MNREGA in the villages saw an increase in the number of people registering for employment, as no other option was available. As per studies conducted by the Ministry of Rural Development, there was a 66 percent increase in rural employment demand from August 2019 to August 2020. Similar trends were observed in other parts of India, including increasing agricultural land being used for crops.

While these were some of the unintended consequences of the lockdown, we need to be aware of similar ‘reverse’ consequences of the urban employment guarantee. The scheme will attract more migrants to urban areas, as it will now provide another incentive to live and work in the cities. In an already dilapidated city administration, do our city governments have the capacity to meet the challenges of this migration? Support systems such as health facilities, education, housing, etc., also need to be augmented in such a scenario.

Distortion in Wages

Furthermore, the migration to urban areas could lead to distortion in wages. The types of employment and wages that daily wage labourers and others in skilled/semi-skilled jobs in urban areas now have may be considered a disincentive once employment guarantee is put in place, due to the limited days of employment, and perhaps higher wages than what they are earning now. The question also arises of fixing a similar wage for tier 1 and tier 2 cities, and even for the cities that fall in the same state. The cost of living may be very different in both types of cities, and hence will act as a disincentive for workers in bigger or metro cities.

Also, will this lead to distortion in the job market?

Skills For Urban Areas

An employment guarantee scheme in urban areas will require a greater skill sophistication than in rural areas. This will require the government to strengthen its skill and vocational training institutions. Not having the requisite skills could also lead to lesser productivity and inefficiency of the available workforce. Factoring in this is critical to make the scheme successful, and fulfil the intended purpose.

Setback For Informal Sector

We need to note that the private and market players who already provide work in urban settings may receive a setback, and experience loss of workforce. If so, the informal economy, and productivity will take a hit.

An urban job guarantee scheme will need a more streamlined approach to provide employment which does not come as a jolt for the existing equilibrium. Any enforcement in the hiring and deployment of workforce by the new scheme could restrict the negotiations and options of the employers in the urban settings.

Other Questions

If an urban job guarantee scheme is implemented, can a person avail both MNREGA and the urban scheme? The selection and definition of urban areas (metros, cities, towns) would also be a challenge, including deciding city boundaries where the scheme would be applied.

These questions and concerns suggest that this scheme should not be just another policy that puts a burden on an already stretched welfare economy, and its resources. Many allied areas need to be either revamped, or made more efficient for the citizens to accrue the benefits. In this light, whether such a scheme would ‘revive the economy’ is anybody’s guess.

This article was written by Reetika Syal and D Dhanuraj

Reetika Syal is Senior Officer, Research, and D Dhanuraj is Chairman, Centre for Public Policy Research, Kochi.

Views expressed by the authors are personal and need not reflect or represent the views of Centre for Public Policy Research.

This article was first published in Money Control on 31 January 2022

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Reetika is a Senior Officer, Research at CPPR. She has a Ph.D in Political Science from Institute for Social and Economic Change, Bangalore, and was Assistant Professor at JAIN (Deemed-to-be) University, Bangalore, for more than 8 years, before joining the organisation. She has also worked as a Postdoctoral Fellow at Wageningen University & Research, The Netherlands and IIT- Delhi in 2018-19, on a project on Civil Society Advocacy with her research focusing on State-Civil Society Relations in Disaster Management in India. She is a part of the Lokniti Network in Delhi, and has been a part of various elections and democracy related studies, along with being a resource person for Lokniti’s Annual Summer School on Quantitative Data Analysis for more than a decade. Dr. Syal has presented papers at many international and national conferences, and has also published in journals and edited books. She was the International Consultant for Nepal Governance Survey, a study by the Nepal Planning Commission in 2017.

Reetika Syal
Reetika Syal
Reetika is a Senior Officer, Research at CPPR. She has a Ph.D in Political Science from Institute for Social and Economic Change, Bangalore, and was Assistant Professor at JAIN (Deemed-to-be) University, Bangalore, for more than 8 years, before joining the organisation. She has also worked as a Postdoctoral Fellow at Wageningen University & Research, The Netherlands and IIT- Delhi in 2018-19, on a project on Civil Society Advocacy with her research focusing on State-Civil Society Relations in Disaster Management in India. She is a part of the Lokniti Network in Delhi, and has been a part of various elections and democracy related studies, along with being a resource person for Lokniti’s Annual Summer School on Quantitative Data Analysis for more than a decade. Dr. Syal has presented papers at many international and national conferences, and has also published in journals and edited books. She was the International Consultant for Nepal Governance Survey, a study by the Nepal Planning Commission in 2017.
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