Welfare implications of the Indian employment guarantee programme with a wage payment delay.

Abstract

We examine the e¢ cacy of a popular anti-poverty programme namely, the National Rural Employment Guarantee Act (NREGA) of the Government of India. We argue that a chronic friction of wage payment delay in this agship programme could adversely a⁄ect the welfare of the poor through two channels. First, it causes deferred consumption. Second, it turns labour into a credit good which makes the indebted household work harder to clear o⁄ his existing debt. The loss of welfare persists even when the worker has an outside employment option. If a programme of nancial inclusion increases the indebtedness of the poor, a wage payment delay in the NREGA programme could escalate this welfare loss although the o¢ cial indicator of success (i.,e. participation) may not reveal this friction.