Modi Steps Up Efforts to Reduce Poverty, Stimulate Rural Development

June 19, 2014 Posted by India Briefing Reading Time: 4 minutes

DELHI – In a major overhaul of its guaranteed employment scheme, India’s Ministry of Rural Development is pushing to make it mandatory for states to spend 60 percent or more of Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) funds on the creation of agricultural infrastructure. This redirection of funds is expected to generate Rs25,000 crore (US$4.147 billion) for investment in agriculture, a senior government official told the Economic Times.

Implemented in 2006, the MGNREGA aims to fight poverty in less developed parts of India. It does this by promising 100 days of work each year to every rural household. Though founded on good intentions, the act has been the subject of harsh criticism for the poor quality of assets being created and delay in wage payments, which has partly defeated the purpose of the scheme.

Under the leadership of Prime Minister Narendra Modi, the Indian government has expressed that the scheme must undergo radical changes, and intends to focus more efforts on asset creation in rural India. Even before being elected, Modi stressed the importance of reformation and developing infrastructure in order to accelerate India’s growth.

According to the proposed amendments to the MGNREGA, the ministry will disperse funds at the district level so that larger projects such as creating irrigation structures can be undertaken, in addition to providing a dedicated fund equivalent to 3 percent of the total capital available to the MGNREGA in order to recruit technical manpower. These technical laborers will guide the planning and execution of projects under the scheme.

“The government feels that the scheme needs to be more outcome oriented on all fronts, be it creating quality assets or payment of wages,” said the official.

The annual amount spent on MGNREGA is Rs41,000 crore (US$6.8 billion). Out of the current wage material ratio of 60:40, barely 28 percent is utilized in the material component under the scheme against the allotted 40 percent. The ministry estimates that these unutilized funds of 12 percent at the district level will fetch approximately Rs8,000 crore (US$1.32 billion) that can then be utilized to create bigger assets.

The ministry has already moved a note to the department of expenditure seeking approval to set aside Rs1,200 crore (US$199 million) for hiring the technical staff needed to guide the planning and execution of MGNREGA works.

This is just one step in Narendra Modi’s overall plan to rebuild India’s economy, however. The prime minister has acknowledged that repairing the economy may require tough measures be taken as, in his view, India has been experiencing growth far beneath its potential.

Modi’s government is now looking to revive the economy largely through increased investment in infrastructure, which it hopes will boost demand in sectors such as cement, steel and power. Modi has also announced plans for urbanization, railway reforms coupled with the development of a bullet train, the Golden Quadrilateral and river-linking.

More details regarding Modi’s river-linking plans have come to light recently. The Indian government has proposed an ambitious Rs25,000 crore (US$4.147 billion) plan to create a national waterway grid linking the Ganga, Brahmputra, Mahanadi and Godavari rivers.

“The plan is ready….we will soon move a formal proposal,” a senior shipping ministry official said, adding that the underlying objective is to enable water from big perennial Himalayan rivers to flow into peninsular ones that generally have strong seasonal flows. The idea is to develop Ganga as a tourism destination, means of transportation, provide a boost to fisheries and diversify sources of hydro-power generation. Linking the rivers will also assist with the offset of seasonal flooding and provide more stable irrigation for agriculture.

Narendra Modi hopes the rapid development of infrastructure, as well as reforms, will expedite the growth of India’s economy, not only through the creation of more jobs and wealth within the country, but also by attracting more foreign investment.

Thus far, it appears his plans are working.

According to the Economic Times, foreign investors have invested more than Rs26,000 crore (US$4.31 billion) into the Indian market this month alone. This is attributed primarily to positive bias from investors overseas after polls and reform-oriented decisions were taken by India’s new government.

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