Roughly two weeks into India’s monsoon season, the eyes of many in the country remain fixed on the daily weather report.
Plentiful monsoon rains are critical to the success of India’s agriculture sector. About 75 percent of India’s total rainfall arrives during the monsoon periods, fueling the majority of the country’s agricultural activity. Thus, a below-average monsoon season can imperil the livelihoods of tens of millions of Indians.
In 2005, realizing that the strong correlation between the monsoon rains, agricultural productivity, and wages was undesirable from a policy perspective, the Indian government under Prime Minister Manmohan Singh introduced the Mahatma Gandhi National Rural Employment Guarantee Act (NREGA). The NREGA, a public employment program, mandates one hundred days of minimum wage employment for rural households on public works projects in areas where traditional employment opportunities are limited, both because of weather shocks and lack of pre-existing alternative avenues of employment.
New research by Theimo Fetzer suggests that the program not only has a net positive effect on wages in areas where agriculture has suffered due to poor monsoon performance, but that it also reduces incidences of armed conflict. This is particularly evident in the northern and eastern areas of India that have been plagued by a Maoist insurgency lasting over thirty years.
Fetzer’s data set first looks at pre-NREGA statistics. The numbers demonstrate a statistically robust relationship between shortfalls in monsoon precipitation and shocks to agricultural productivity, which inevitably translate into decreased wages in rural districts where agriculture is the dominant occupation. This, according to the data, subsequently leads to a rise in the incidence and severity of conflict, which primarily includes Maoist/Naxalite violence, but also incidences of general criminal activity.
So what happened after the introduction of NREGA? Looking at the same set of statistics, Fetzer found that NREGA strongly correlated with a 30 to 50 percent reduction in conflict levels in those districts where it was implemented. Fetzer writes that the effect was not immediate, but rather manifested itself two years after NREGA’s introduction.
The evidence suggests that the infusion of public funds into a local economy suffering from a monsoon deficiency stabilizes agricultural wages, creating positive ripple effects for the economy of the affected district. Even when a poor monsoon season reduces output, wages do not fall in a corresponding manner. Thus, the employment guarantee effectively breaks the relationship between monsoon variability and income variability, even among those who do not directly participate in the program.
Over time, NREGA also has a positive effect on the incidence and severity of conflict. As Fezter concludes:
The findings of this literature have a direct policy implication: any measure that helps insulate household income from adverse shocks should moderate the relationship between these exogenous productivity shocks and conflict.
Conflict, of course is multi-causal. The Maoists pay their fighters a wage that is in most cases better than the prevailing agricultural wage; however, Fetzer’s analysis suggests that the backstop of NREGA likely erodes the attractiveness of this wage by raising the opportunity cost of participating in insurgent activities. In addition to providing an income cushion (or at least the promise of one in tough times), one could hypothesize that the mere existence of the program raises the legitimacy of the central government. NREGA, after all, was a response to the legacy of underinvestment and under-development in India’s “backward” areas. For years, Maoists have attempted to fill this void with their alternative vision of governance in India. Even an imperfectly administered NREGA, then, would go a long way in sapping enthusiasm for the Maoists’ armed ideological struggle.
The essential point to keep in mind for the future, then, is how to make NREGA robust, stable, and transparent—especially in the face of advancing climate change, which the Indian government is starting to do with NREGA projects that focus explicitly on building climate resilient practices in the agriculture sector.
There has been criticism leveled at the administration of NREGA, especially on corruption grounds, and the program is not universally popular across India. These complaints about NREGA demonstrate a natural contradiction at the heart of targeted assistance programs like this. If local authorities possessed 100 percent capacity to implement them transparently, they likely would not have been needed in the first place. That being said, future iterations of NREGA would naturally benefit from strengthening safeguards if it is to be a model for similar programs elsewhere.
These efforts will be essential in the wake of the G7’s recent commitment to expanding developing nations’ access to insurance in which they pledged to provide an additional 400 million people with insurance for climate-related risks. Not only will these insurance programs help with the financial impact of natural disasters to property, but also with the corresponding blows to local wages economic stability, and potentially, societal peace.
NREGA should thus be considered a promising experiment in smoothing out the microeconomic effects of macroeconomic trends. Based on Fetzer’s data analysis, we can take confidence in the evidentiary basis for saying that insurance programs may be an effective adaptation response to climate change. How the international community applies this lesson will be an essential question to answer.
Tags: climate change, india, economy, conflict
Reducing Climate Shocks in India through Social Insurance
Roughly two weeks into India’s monsoon season, the eyes of many in the country remain fixed on the daily weather report.
Plentiful monsoon rains are critical to the success of India’s agriculture sector. About 75 percent of India’s total rainfall arrives during the monsoon periods, fueling the majority of the country’s agricultural activity. Thus, a below-average monsoon season can imperil the livelihoods of tens of millions of Indians.
In 2005, realizing that the strong correlation between the monsoon rains, agricultural productivity, and wages was undesirable from a policy perspective, the Indian government under Prime Minister Manmohan Singh introduced the Mahatma Gandhi National Rural Employment Guarantee Act (NREGA). The NREGA, a public employment program, mandates one hundred days of minimum wage employment for rural households on public works projects in areas where traditional employment opportunities are limited, both because of weather shocks and lack of pre-existing alternative avenues of employment.
New research by Theimo Fetzer suggests that the program not only has a net positive effect on wages in areas where agriculture has suffered due to poor monsoon performance, but that it also reduces incidences of armed conflict. This is particularly evident in the northern and eastern areas of India that have been plagued by a Maoist insurgency lasting over thirty years.
Fetzer’s data set first looks at pre-NREGA statistics. The numbers demonstrate a statistically robust relationship between shortfalls in monsoon precipitation and shocks to agricultural productivity, which inevitably translate into decreased wages in rural districts where agriculture is the dominant occupation. This, according to the data, subsequently leads to a rise in the incidence and severity of conflict, which primarily includes Maoist/Naxalite violence, but also incidences of general criminal activity.
So what happened after the introduction of NREGA? Looking at the same set of statistics, Fetzer found that NREGA strongly correlated with a 30 to 50 percent reduction in conflict levels in those districts where it was implemented. Fetzer writes that the effect was not immediate, but rather manifested itself two years after NREGA’s introduction.
The evidence suggests that the infusion of public funds into a local economy suffering from a monsoon deficiency stabilizes agricultural wages, creating positive ripple effects for the economy of the affected district. Even when a poor monsoon season reduces output, wages do not fall in a corresponding manner. Thus, the employment guarantee effectively breaks the relationship between monsoon variability and income variability, even among those who do not directly participate in the program.
Over time, NREGA also has a positive effect on the incidence and severity of conflict. As Fezter concludes:
The findings of this literature have a direct policy implication: any measure that helps insulate household income from adverse shocks should moderate the relationship between these exogenous productivity shocks and conflict.
Conflict, of course is multi-causal. The Maoists pay their fighters a wage that is in most cases better than the prevailing agricultural wage; however, Fetzer’s analysis suggests that the backstop of NREGA likely erodes the attractiveness of this wage by raising the opportunity cost of participating in insurgent activities. In addition to providing an income cushion (or at least the promise of one in tough times), one could hypothesize that the mere existence of the program raises the legitimacy of the central government. NREGA, after all, was a response to the legacy of underinvestment and under-development in India’s “backward” areas. For years, Maoists have attempted to fill this void with their alternative vision of governance in India. Even an imperfectly administered NREGA, then, would go a long way in sapping enthusiasm for the Maoists’ armed ideological struggle.
The essential point to keep in mind for the future, then, is how to make NREGA robust, stable, and transparent—especially in the face of advancing climate change, which the Indian government is starting to do with NREGA projects that focus explicitly on building climate resilient practices in the agriculture sector.
There has been criticism leveled at the administration of NREGA, especially on corruption grounds, and the program is not universally popular across India. These complaints about NREGA demonstrate a natural contradiction at the heart of targeted assistance programs like this. If local authorities possessed 100 percent capacity to implement them transparently, they likely would not have been needed in the first place. That being said, future iterations of NREGA would naturally benefit from strengthening safeguards if it is to be a model for similar programs elsewhere.
These efforts will be essential in the wake of the G7’s recent commitment to expanding developing nations’ access to insurance in which they pledged to provide an additional 400 million people with insurance for climate-related risks. Not only will these insurance programs help with the financial impact of natural disasters to property, but also with the corresponding blows to local wages economic stability, and potentially, societal peace.
NREGA should thus be considered a promising experiment in smoothing out the microeconomic effects of macroeconomic trends. Based on Fetzer’s data analysis, we can take confidence in the evidentiary basis for saying that insurance programs may be an effective adaptation response to climate change. How the international community applies this lesson will be an essential question to answer.
Related posts:
Tags: climate change, india, economy, conflict