NREGS and TPDS in Rajasthan and Madhya Pradesh: Complements or Substitutes?

The workfare scheme the National Rural Employment Guarantee Scheme (NREGS) and the direct food subsidy program the Targeted Public Distribution Scheme (TPDS) represent two alternative social safety nets instituted in India as anti-poverty measures. This paper examines whether from the point of view of individual households the two programs are substitutes or complements, as this will shed light on the appropriateness of the design of the two programs. Based on primary household data collected from the Indian states of Rajasthan and Madhya Pradesh (MP), we show that in Rajasthan, a large percentage of households consider TPDS and NREGS programs to be substitutes for each other, while in MP, the households often perceive the two programs as complements. This holds irrespective of household size, education level, size of land-holding, social group, transaction costs and poverty status. We further isolate the correlates of participation for households that consider the two programs to be either complements or substitutes. It is concluded that the two programs are better designed in MP since an incentive for participation in one program has desirable side-effects on participation in the other, because a large percentage of households perceive the two programs to be complements. However, in Rajasthan, an isolated policy measure aimed at enhancing participation in one program would tend to reduce the level of participation in the other program since households perceive NREGS and TPDS as substitutes. An important policy conclusion, therefore, is that anti-poverty intervention must be designed so as to maximize the proportion of households that consider the programs within such intervention to be complementary.