UNCLAS SECTION 01 OF 05 MUMBAI 000184

SENSITIVE
SIPDIS

STATE PLEASE PASS TO USTR

E.O. 12958: N/A
TAGS: EAGR EAID ECON ELAB PGOV SOCI IN
SUBJECT: DROPPING MONEY FROM A HELICOPTER:" WILL UPA AGRICULTURE
DEVELOPMENT PROGRAMS MAKE A DIFFERENCE TO VOTERS IN WESTERN INDIA?

REF: A. MUMBAI 0153

B. NEW DELHI 572

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Summary: 1. (SBU) The Congress-led United Progressive
Alliance government's initiative to build rural infrastructure
through the Bharat Nirman (BN) program and provide rural
employment through the National Rural Employment Guarantee Act
(NREGA) are two of its flagship national development programs.
These programs were specifically designed to provide
badly-needed infrastructure and off-season employment to
underdeveloped agricultural regions. Agricultural researchers
and experts in Maharashtra largely applauded the efforts behind
the programs, but argued that the impact and implementation of
both programs has been spotty and uneven across the states of
western India. With limited trained manpower, differing
priorities, and numerous avenues for diverting funds, these
massive cash transfers to the states pose significant challenges
of implementation and monitoring. Indeed, the difficulties in
ensuring that the benefits of central government programs will
actually reach the needy has led previous governments to rely on
wasteful subsidies - such as oil or fertilizer - or the
provision of free inputs - such as free electricity or water -
instead of more targeted programs. Nevertheless, at the very
minimum, the NREGA and BN programs have at least provided
badly-needed rural infrastructure, eased the dependency pressure
on agriculture, and resulted in income transfers to rural India.
These programs have also made some headway in India's attempts
to "reach every citizen" to provide tailored development
benefits. Whether voters will credit the Congress and the UPA
for these gains will likely vary from state to state. The two
states that have used the NREGA the most - Madhya Pradesh and
Chhattisgarh - are also in the hands of the opposition Bharatiya
Janata Party, whose leaders are equally eager to take credit for

their more successful implementation of UPA programs. End
Summary.





Progress of Western India in Implementing Government's Bharat
Nirman to Improve Rural Infrastructure

--------------




2. (U) In 2005, the current Congress-led United Progressive
Alliance (UPA) government launched the Bharat Nirman (BN)
program, an asset-creating plan for rural India with six
components - roads, power, drinking water supply, housing,
telecom and irrigation. The objective of the plan was to
provide improved livelihoods and living conditions for rural
India to enable equitable and inclusive growth. This time-bound
plan for developing rural infrastructure was originally
scheduled to be completed in 2009, but has been extended to 2011
due to implementation delays. According to the Ministry for
Rural Development, the total estimated investment for achieving
the various program components of BN is USD 35 billion, although
the last three years' budgets together have provided only $17
billion.




3. (U) According to state-level data submitted to the Ministry
for Rural Development, the western India states comprising
Maharashtra, Gujarat, Madhya Pradesh (MP), and Chhattisgarh,
like the rest of India, performed exceedingly well in the rural
housing, telecom, and safe drinking water components of BN.
While the achievement of the other BN program components was
more modest, their comparative performance in road construction
and irrigation was still better than the all-India achievement
rate. Western India states achieved 65 percent of their target
for road construction, as against the national achievement rate
of 40 percent. Gujarat surpassed its targets by 24 percent,
while the remaining three states achieved at least half of their
targets for road construction. In irrigation, the performance
was more varied; Maharashtra and Chhattisgarh achieved over 60
percent of their targets for creating irrigation potential,
while Gujarat and MP met less than half. (Note: Agricultural

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researcher Ajay Dandekar claimed that Gujarat's poor performance
in improving irrigation under Bharat Nirman was because most of
the state's irrigation projects were community owned. End
Note). Nationally, half of irrigation targets had been met as
of March 2008, with an additional irrigation potential of 5.3
million hectares created, short of the targeted 10 million
hectares.




4. (U) Notwithstanding their good performance in road and
irrigation development, western India states faltered in
providing rural electrification to un-electrified villages and
Below Poverty Line (BPL)families either through electric grid
connectivity or alternative technologies. Maharashtra did not
electrify even one of the 6 targeted villages, while MP and
Chhattisgarh electrified 71 and 45 villages out of 790 and 750
targeted villages, respectively. (Note: According to official
statistics, Maharashtra and Gujarat already have near-100
percent rural electrification rates. However, a village is
deemed to be electrified if electricity is used within its
boundary for any purpose and if 10 percent of the households in
the village receive electricity, a very modest standard. End
Note). In comparison, Uttar Pradesh, often cited as one of the
worst-governed states, was the top performer for rural
electrification. Uttar Pradesh electrified 90 percent of the
targeted 30,802 villages, and provided electric connections to
61 percent of BPL households. Western India states, in
comparison, could barely cover 20 percent of BPL households
targeted for electrification. Uttar Pradesh also met 84 percent
of its road construction target and was one of the few states to
exceed its irrigation target.



Western India's Experiences with the NREGA Reveal Functionality
Flaws

--------------




5. (U) The National Rural Employment Guarantee Act (NREGA) was
passed by the UPA government in September 2005 to provide
livelihood security in rural areas (ref B). The act, launched
in February 2006, guarantees 100 days of wage employment in a
financial year (April-March) to a rural household whose members
volunteer to do unskilled manual work. According to the
Ministry of Rural Development, the NREGA provided employment to
96 million households out of a total of 98 million households
who demanded employment from 2006-2009. The nationwide NREGA
employees worked on a total of 5 million projects involving a
total expenditure of USD 11.3 billion. Around one-fifth of NREG
employees came from the four western India states of
Maharashtra, Gujarat, MP, and Chhattisgarh. The NREGA employees
of these states developed, or are in the process of developing,
over a million projects in their respective states at a total
cost of USD 2.4 billion. MP was one of the "top national
employers," with 12 million NREGA employees working on 365,677
projects at a total cost of USD 1.6 billion, according to
national data. MP, along with the neighboring states of
Chhattisgarh and Rajasthan, led in terms of the number of
person-days of employment provided per rural household. In
contrast, person-days of NREGA employment per rural households
were low in Maharashtra and Gujarat. However, Jean Dreze, a
social scientist considered the "father" of the NREGA, noted
that the accuracy of official NREGA employment data is
questionable and requires further scrutiny.




6. (U) The Comptroller & Auditor General's (CAG) 2006-07
performance audit on the NREGA also listed several procedural
and financial irregularities in the implementation of the NREG
program. (Note: This was the first year that the program was
implemented, so many of the administrative inefficiencies
observed may have since been addressed. End Note.) According
to the CAG report, Maharashtra missed its employment and work
targets by the widest margins of any state in 2006-07. Gujarat

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and MP did not even prepare an annual plan for 2006-07. The
audit report notes that "the absence of documented annual plans
affects the ability to meet demand for employment as there is no
slate of projects readily available for timely approval." (Note:
Maharashtra introduced a program similar to NREGA in the 1970s,
which agricultural experts claimed was the model for NREGA and
had worked relatively better than other agricultural development
programs of its time. End Note.)




7. (U) The CAG report observed that workers in some districts
of Maharashtra, MP, and Chhattisgarh received wages below the
state's prevailing minimum wage rate. The audit also found that
workers in Gujarat, MP and Chhattisgarh were not paid on time,
and were not compensated for delayed payments. The CAG noted
that "non-payment of minimum wages and delayed payment of wages
is illegal and defeats NREG's objectives of providing livelihood
security." The CAG audit also found that the average
person-days provided to each household who demanded work ranged
from 36 to 51 days in Maharashtra, and the average wage ranged
from 16 cents to USD 3.7 per day in the three audited districts
in the state. In MP, the full guaranteed 100 days of employment
was provided to only 19 percent of the households demanding
employment. Evidence of tampering of the employment muster and
fraudulent employment was witnessed in audited districts of both
MP and Chhattisgarh. A subsequent study in 2007 conducted by
Dreze in co-ordination with the G. B. Pant Institute of Social
Sciences found that administrative corruption and "leakages" in
the audited districts of Chhattisgarh was lower under the NREGA
than the National Food for Work program of 2005, which has since
been merged with the NREGA.



Interlocutors Maintain that NREGA Works, Although With Some
Caveats

--------------


8. (U) Agricultural researchers and experts in Maharashtra
admitted that the NREGA suffered from administrative
inefficiency, corruption and leakages like most other
government-sponsored programs. Nonetheless, they described the
program as "good" in conception, intention, and design, with a
high achievement rate in terms of employment provided, as
compared to other rural development programs. Veena Mishra, the
Chief Economist of Mahindra & Mahindra, praised the NREGA's aims
to provide a social security net for the unemployed in rural
India and offer an alternative to agricultural employment. She
believes that the NREGA empowers the rural sector and makes them
aware of their rights for demanding good governance. Rahul
Sharma, Head of Rural Information & Insights for Mahindra &
Mahindra, pointed out that many of the eligible jobs under the
NREGA overlap with the government's BN rural infrastructure
development program. NREGA employment has, therefore, become a
key enabler to achieve the targets proposed under the
government's BN, he argued. (Note: Contrary to Sharma's
observations, the Director of the NREGA in the Ministry for
Rural Development denied the connection between Bharat Nirman
and the NREGA in a meeting with Delhi Econoff. End Note).
Sharma noted that the NREGA is a good "learning curve" for
future rural development programs.




9. (SBU) S. Chandrasekhar, researcher at the Indira Gandhi
Institute for Development Research (IGIDR) believes that the
NREGA has ushered in "rights-based" development. He noted that
unlike previous wage employment programs, the NREGA provides a
statutory guarantee of wage employment. A person registering
under the NREGA who does not get a job within fifteen days, is
entitled to unemployment allowance under the act. V. Shunmugam,
Chief Economist of the Multi Commodity Exchange (MCX), noted
that NREGA jobs result in the creation of productive assets like
badly-needed rural infrastructure.




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10. (SBU) One negative outcome of the NREGA, Mishra explained,
was that it diverts labor from agriculture and has driven up the
agriculture wage rate in some states. (Note: This is an
unintentional consequence of the NREGA; the program was designed
to supplement agricultural incomes during off-seasons and not to
substitute agricultural labor during peak season. End Note).
Many states are paying NREGA workers more than the state's
prevailing minimum wage rate. Labor-deficient states like
Punjab and Haryana are, therefore, facing a shortage of
agricultural wage labor migrants from Bihar and other
neighboring states, she noted. A section of small and
medium-sized farmers in the Wardha district of Vidharbha told
ConGenoff that the NREGA was "hurting" their farming operations
by driving up the agricultural wage rate, and depriving them of
agricultural workers during peak farming season. Ganesh Kumar,
agricultural researcher at the IGIDR, conceded that while the
NREGA was designed as a risk protection mechanism, it was
creating supply pressures in local labor markets. MCX's
Shunmugam pointed out that the alternative rural employment
opportunity provided by the NREGA reduces rural urban distress
migration and, consequently, lessens the population pressure in
urban areas. However, IGIDR's Chandrasekhar disagreed, claiming
that intra-state rural to rural migration comprised 80 percent
of total migration within India. Thus, the NREGA is more likely
to displace agricultural labor within each state, he concluded.





11. (SBU) Mishra also expressed concern that the NREGA could
devolve into a money-spinning and rent-seeking opportunity for
politicians in the future. (Note: During a visit to
Chhattisgarh in 2007, ConGenoff heard that local bureaucrats
demanded Rs.10 (around 20 cents) before registering the
unemployed under NREGA. End Note). Mishra warned that the
NREGA has become so politically entrenched that it cannot be
dismantled in the future, even when not needed. Sharma
concurred and opined that since many NREGA jobs overlap with BN
programs which are scheduled to end in 2011, the future
viability of the NREGA without BN was questionable. (Note: The
Ministry of Rural Development has designed these programs
independently. End note.)



Will These Programs Help the Congress at the Ballot Box?

-------------- --------------




12. (SBU) The Congress obviously hopes that rural voters will
credit the party and its local politicians with the new-found
income streams and greater attention to rural infrastructure.
In the case of western India, however, three of the four major
states - Gujarat, MP, and Chhattisgarh -- are run by BJP
governments who have overseen the programs' implementation. In
the case of MP and Chhattisgarh, an estimated 24 and 30 percent
of the rural population, respectively, found employment through
NREGA work. In contrast, in Gujarat and Maharashtra, less than
four percent of the rural population registered under the NREGA
to request work. There are several possible explanations for
these differences. First, as relatively poorer states with
fewer non-agricultural employment opportunities, MP and
Chhattisgarh would likely have much greater demand for NREGA
employment. Maharashtra and Gujarat, as relatively more
prosperous states with many non-agricultural employment
opportunities, would have correspondingly less demand.
Therefore, voters in Gujarat and Maharashtra are far less likely
to be impressed with these Congress programs, and the
implementation of them by their states.




13. (SBU) Second, commentators agree that governance in both MP
and Chhattisgarh has improved under the current BJP governments,
which have made better use of programs like these. In this
case, however, these governments are likely to take credit for
job creation and infrastructure projects implemented under the

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BN and NREGA programs. Voters may not be aware of which
government - at which level - has proposed, created, or
implemented the programs from which they are benefitting.
Nevertheless, to the extent that voters do know, the Congress is
likely to benefit in MP and Chhattisgarh, where the party has
huge electoral deficits to overcome.



Comment: How Do You Reach Every Citizen?




14. (SBU) Like many government-sponsored programs, both the BN
program and the NREGA suffer from weak administration, spotty
implementation, and leakages and diversions in Western India.
True validation of the NREGA's success requires more
comprehensive data on rural unemployment to indicate each Indian
state's relative need for an employment guarantee program in the
absence of other fruitful means of employment. Nonetheless,
national data shows that BN and NREGA have resulted in asset
creation and income transfers to rural India. Labor shortages
in agriculture and rising agricultural wage rates are
unintentional consequences of the NREGA, and often cited by
critics of the program. However, agricultural growth has been
stymied by poor government policies, like maintaining low
commodity prices to ensure food security for the poor and the
land ceiling act to prevent the concentration of land in the
hands of a few, and continued underinvestment in rural
infrastructure, among other reasons. Farm development programs,
increased and widespread ag-extension services, technological
innovation to boost productivity yields, along with agricultural
policy reform, are central to raising farm incomes, and not low
agricultural labor rates. By inadvertently offering an
alternative to agricultural employment, the NREGA reduces the
dependency on agriculture, and along with the BN program,
creates badly-needed rural infrastructure that benefits the
farmers.




15. (SBU) The challenge for any Indian government is for its
development programs to reach the individuals and families who
need them most, whether rural or urban. Due to corruption, poor
administration, and apathy, hundreds of millions of Indians are
unable to access the very basics of identity and individuality -
ration cards, voting cards, BPL cards, and bank accounts. In
addition, the delivery of some of the most important social
services - sanitation and health, irrigation, agriculture,
potable water, roads, and schools - are the responsibility of
the states, which have been consistently low or non-performers
(with a few exceptions). The Indian government knows, roughly,
how many people live in India, and who should be the
beneficiaries of assistance programs, but special interests have
stymied most efforts to reform subsidy programs.




16. (SBU) Therefore, successive Indian governments have
continued wasteful subsidy and free input programs to cover the
widest possible swath of people, in the knowledge that the
wealthiest - transport owners, big farmers, and fertilizer
producers - will gain proportionally more than their poorer
neighbors. These programs are akin to dropping money from a
helicopter; the tallest, ablest, and strongest will gather the
most money, but the weakest will get some of the money, though
far less than they need. With so many ways for development
funds to be misused and diverted in India's notoriously corrupt
bureaucratic and political system, dropping money from a
helicopter may be the best the Indian government can do at this
time. However, the central and some state governments are now
pioneering "smart cards"," mobile phone transfers, and other
technological innovations to better identify and reach each
citizen to ensure they receive the benefits they are entitled
to. The NREGA represents a more ambitious attempt to use
targeted development programs to benefit needy groups, an
approach that may be expanded into new areas should the UPA
return to power. End Comment.
FOLMSBEE