VZCZCXRO8641
PP RUEHAST RUEHCI RUEHDBU RUEHLH RUEHNEH RUEHPW
DE RUEHBI #0184/01 1271325
ZNR UUUUU ZZH
P 071325Z MAY 09
FM AMCONSUL MUMBAI
TO RUEHC/SECSTATE WASHDC PRIORITY 7164
INFO RUEHRC/DEPT OF AGRICULTURE USD FAS WASHINGTON DC
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEAIIA/CIA WASHDC
RHEHAAA/NSC WASHINGTON DC
RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLLECTIVE
RUEHNE/AMEMBASSY NEW DELHI PRIORITY 8397
RUEHCI/AMCONSUL KOLKATA PRIORITY 1835
RUEHCG/AMCONSUL CHENNAI PRIORITY 2044
RUEHBI/AMCONSUL MUMBAI PRIORITY 2356

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 
 
MUMBAI 00000184  001.2 OF 005 
 
 
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 
 
MUMBAI 00000184  002.2 OF 005 
 
 
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 
 
MUMBAI 00000184  003.2 OF 005 
 
 
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. 
 
 
 
 
MUMBAI 00000184  004.2 OF 005 
 
 
¶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 
 
MUMBAI 00000184  005.2 OF 005 
 
 
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