Speech of the Chairman, Administrative Reforms Commission


National workshop on “Strengthening the financial management systems for implementation of the National Rural Employment Guarantee Act”

held at

The National Institute of Pubic Finance and Policy

On 19th and 20th Dec. 2005


Mahatma Gandhi had once said,


“‘A nation may do without its millionaires and without its capitalists, but a nation can never do without its labour


The recently passed National Rural Employment Guarantee Act has been said to be the "most important piece of legislation" in independent India. It marks a new beginning in the efforts for social equity and justice”. The Act stipulates that the State Governments have to provide 100 days of work to a member of every rural household in a financial year in accordance with the Scheme made under this Act. The Act provides for a phased roll out with 200 backward districts covering a third of the country being taken up initially. This will be expanded to cover the entire country over the next five years. Thus the objective of the Act is to provide for the enhancement of livelihood security of the households in rural areas of the country by providing at least one hundred days of guaranteed wage employment in a financial year to every household whose adult members volunteer to do unskilled manual work. Under guidelines of the Centre, states are expected to craft locally relevant schemes to generate employment and create productive assets. It is up to the states to make this a creative agenda for rural transformation utilizing the large resources that will flow under this programme.


Tackling rural poverty and unemployment has been uppermost in the minds of our development planners. Productive absorption of under employed and surplus labour force in the rural sector has been a major focus of planning for rural development. In order to provide direct supplementary wage employment to the rural poor through public works, many programmes were initiated by the Government of India, namely, National Rural Employment Programme (NREP), Rural Landless Employment Guarantee Programme (RLEGP) and Jawahar Rozgar Yojana (JRY), National Programme of Food for Work and Sampoorna Gramin Rozgar Yojana. Though these programmes have provided relief to the rural areas, their reach has been inadequate in view of the magnitude of unemployment in rural areas. Moreover there is no guarantee that employment will be available to the rural households on demand as all these programmes were allocation based programmes. This situation of unemployment has been compounded by the absence of any social security mechanism.

The National Rural Employment Guarantee Act brings in a paradigm shift. The key to this legislation lies in the word ‘guarantee’. As I have mentioned earlier, there have been multitude of employment generation and poverty eradication schemes in the country. But none of these schemes gave a right to the rural poor to demand work. But the word guarantee in the Act makes it a right, something that people will expect and demand, something they can complain about,. It has the potential to profoundly alter the way government officials treat the people they are supposed to serve.

The enactment of this law has been necessitated due to several factors. The problem faced by a large number of rural folk was lack of employment, especially during the dry season. In dry and drought-prone areas, many communities had to habitually migrate to other parts of the country in search of work, a painful and disruptive process. It destroyed the fabric of the community, the family lives of the migrants, the possibility for education of the children. These forced migrants were subject to some of the worst exploitation in their new workplaces. Those left behind did not have enough to eat or the barest of money for other basic necessities.

The case for an employment guarantee arises from other considerations also. First, mass poverty and deprivation in India are structurally caused and socially determined. Millions are forced into chronic poverty for no fault of theirs other than their birth in underprivileged conditions. A person who is willing to perform even the most unskilled of manual labour cannot find work. Society has failed to redress this for decades. This is an unacceptably unjust waste of valuable human potential. It is society’s duty to empower the most unfortunate among the poor by providing employment to them.

Second, “normal” economic processes cannot resolve the problems of chronic poverty, unemployment, all-round low social indicators, and depleted human capacities. Such processes will perpetuate or reinforce, they won’t redress, the underlying structural causes—irrespective of the volume of GDP growth! Public action is absolutely essential. This can best take the form of special programmes to create capacities and provide a modicum of social security. An employment guarantee is a worthy form of public action.

Just as the proof of pudding lie in eating, the success of this enactment would depend upon its implementation. The Prime Minister has said:

Our performance in these 200 districts will yield useful insights and lessons while extending it across the country. Therefore, the quality of implementation of the Act in its initial phase is of critical importance. We need to translate the legal commitment of the Act into an effective programme of action that delivers the benefits as guaranteed,"

The Prime Minister has stressed upon the need to establish institutional mechanisms for implementing the guarantee. He has further stated:

“The Panchayati Raj institutions, with the assistance of government agencies, are central to this. The Panchayati Raj institutions will have to be geared up for it. You would need to ensure capacity building of these institutions so that they may discharge their responsibilities effectively,"

The implementation challenge can be assessed by the magnitude of the problem itself. The percentage of people below the poverty line is estimated to be around 25. That is, India has about 250 million people who are so poor that they can’t cross the poverty line that is set way below what can be considered necessary for a human existence. This number is about 8 times the total population of Canada. Implementation of this Act in all 600 districts, would mean coverage of about 6 lakhs villages. The scheme would be implemented by more than 2.5 lakhs panchayats. The planning process, release of funds, supervision and monitoring of this nationwide scheme would really be a mind boggling exercise. Even the funds involved are estimated to be in the range of 40,000 crores per annum, and this makes it by far the biggest scheme ever implemented in the country.

Today we have assembled to find out ways of strengthening the financial management systems required for effective implementation of the Act. But the financial management systems cannot be viewed in isolation. The financial management process is a function of the planning process, institutional mechanisms, the accountability systems, and the monitoring and evaluation systems. Thus in fact we will have to look into all aspects of implementation of the Act.

The first and foremost task before us would be to evolve the institutional mechanisms required. The Act envisages a collaborative partnership between the Central and the State Governments, the panchayats and the local community. The Act has specifically defined the roles and responsibilities of different tiers of the panchayats, the State Governments and the Central Government. A structural mechanism needs to be put into place. Each level of panchayat has to be provided with appropriate technical and administrative assistance, the details of fund flow have to be worked out and so also the delegation of authority and fixing of responsibility. The task gets further complicated because of the diversities and the differences in the level of development that prevail across the country. Information Technology could provide efficient solutions to most of the problems. But the IT penetration is not uniform throughout the country. In areas where IT has not reached, the manual systems will have to continue but they should be so designed such that switching over to IT systems becomes easier at a later date.

Community participation holds the key to the success of this scheme. The Act confers entitlements upon people and puts their demands centre stage. The Act envisages involvement of community at almost all stages. Planning is critical to the successful implementation of the Employment Guarantee Scheme.  The first step in the planning process has to be initiated at the gram sabha level. Even the identification of the beneficiaries is to be done by the gram sabhas. Last but not the least, the gram sabhas have to carry out a social audit of all the projects, within their jurisdiction. The Act brings in a reversal of roles for the community and the government functionaries. Earlier the people would depend upon the government functionaries for getting employment. Now the people would demand work as matter of right and the Government functionaries would be duty bound to provide employment. For this paradigm shift, the community would have to be prepared. This would include measures for awareness generation, to begin with, but later on these would have to graduate to capacity building measures. Capacity building measures would also be required for the panchayat members and the government officials. The real challenge would be to develop and implement the capacity building programmes and awareness generation campaigns.


The Prime Minister has described NREGA as a unique social safety net as its beneficiaries are not passive recipients of doles, but will become active participants in the creation of rural assets. The Prime Minister has emphasized that methods of estimation and measurement of works and rates of payment for each task should be made transparent. He has said:

"The labour that seeks work must understand what is offered, on what terms and demand its full entitlement. Similarly, there should be complete transparency in maintenance of muster rolls and payment of wages. There should be fairness all around” .

Further, the Prime Minister said the Right to Information Act would cover every aspect of the implementation of NREGA.


"People will have general access to public records and information pertaining to NREGA. We must not forget that eternal vigilance is the price of liberty,"


The Act would have to been seen against the background of the Right to Information Act, which would enable social audits and greater public scrutiny of the programmes. It will ensure greater accountability of panchayat bodies and the district administration as well. For example, muster rolls will no longer be secret, and budget and works will be public knowledge. All this will ensure that only those who really need work will be employed, and only those schemes required by the community are taken up. Public access to key records and key information would have to be ensured at all levels. This would be possible only if the records are maintained in a proper format. We will have to evolve systems wherein most of the information is put in the public domain through “Voluntary disclosure”.



The salient feature about the implementation of the Act would be the total elimination of middlemen and contractors. The works would be directly entrusted to various line agencies, NGOs and Self Help Groups. But this would another problem, how to assess the quantus of work contributed by the worker. Under the earlier system, the schedule of rates prescribed by the state PWD is followed. Now norms for arriving at the estimates and norms for measurement would have to be evolved by the States. These norms once again may vary from district to district. This would involve carrying out time and motion studies and establishing productivity norms, and ultimately devising a district schedule of rates. More important would be to convert these norms into locally understandable terminology of ‘People’s estimates”.


The financial flow arrangements would have to be especially designed for effective implementation of the Act. As payments have to be made within a fortnight, this would entail rapid flow of funds to the panchayats on one hand and rapid flow of  progress related information from the panchayat to the Block Programme Officer, on the other. The accounting system at the panchayat as well as at the intermediate and the District levels would have to be totally harmonized. The fund flow monitoring system should be able to track all movements of funds and their utilization.

An efficient Management Information System would be required for constant monitoring of the implementation process. This is all the more needed as the benefits under the Act are legally justiceable. A key aspect of management will therefore be maintaining data on all aspects of implementation. Who would maintain and update this database? Could it be outsourced? These would be the issues, which have to be answered.

As major investments would be made under this Scheme, therefore linking asset creation under Employment Guarantee Scheme to human development efforts such as education, healthcare and provision of water supply would be very necessary. Funds are available with the panchayats from various sources such as the National Finance Commission, State Finance Commission, State Departments, Central and Centrally Sponsored Schemes, DPAP, DDP etc. the funds available under these schemes could be dovetailed for construction of durable assets under the NREGA. What mechanism would be required to bring about convergence between various schemes on one hand and avoid duplication on the other? This needs to be deliberated upon.

A country-wide scheme with huge investment would require that a perfect monitoring and evaluation framework is put in place. Various aspects of the scheme would have to be monitored regularly. The monitoring system should be able to provide the required information to the different levels. The works will be physically monitored by the gram sabhas and the gram panchayats. The process of registration of the households, issue of job cards, timely payment of wages etc would be monitored by the gramsabhas. The next level i.e. the intermediate panchayat would monitor social audit, flow of funds, progress and quality of work. The State Government would monitor the performance of all districts and the pace of implementation. The real issue would be how to capture the data on these different aspects and then to process this data.

The National Rural Employment Guarantee Act differs from earlier schemes in that its starting point is the empowerment of rural people, rather than "providing" employment to the poor. The new Act is expected to break the vicious circle of poverty in case of  below the poverty line (BPL) families. This would increase their purchasing power and thereby give a big push to the overall economic development. The scheme will also help check migration from rural to urban areas and solve the problem of urban slums. No doubt, it is a visionary attempt to remove poverty, but how to ensure its sustainability would depend upon its implementation. The guarantee is a small step towards the goal of empowering the rural power. It will depend crucially on the way rural society engages with government functionaries when it is implemented.

Implementation of this Act poses a big challenge. But it is not insurmountable. I hope the Workshop would deliberate on all aspects of its implementation with focus on the financial management systems, and come up with findings and recommendations, with which we can strive to achieve the objectives of this Law.