National Rural Employment Guarantee Scheme, Poverty and Prices in Rural India

The objective of this analysis is mainly to construct an intuitive measure of the performance
of the National Rural Employment Guarantee Scheme (NREGS) in India -a nation-wide
poverty alleviation programme which was introduced in 2005. The focus is on excess
demand at the district level. Some related issues addressed are (i) whether excess demand
responds to poverty, and (ii) whether recent hikes in NREGS wages are inflationary. Our
analysis confirms responsiveness of excess demand to poverty. Also, apprehensions
expressed about the inflationary potential of recent hikes in NREGS wages have been
confirmed. More importantly, higher NREGS wages are likely to undermine self-selection of
the poor in it. So, in order to realise the poverty reducing potential of this scheme, a policy
imperative is to ensure a speedier matching of demand and supply in districts that are highly
poverty prone, as also to avoid the trade-offs between poverty reduction and inflation.