Workfare and Vulnerability in Rural India

Using a unique panel data for rural India for the periods 1999 and 2006 this paper models vulnerability to poverty in the context of local governance and the introduction of the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS). We quantify household vulnerability in rural India in 1999 and 2006, investigate the determinants of ex post poverty as well as ex ante vulnerability, assess the role of ex ante vulnerability on poverty shift during the sample periods (i.e. movement into/out of poverty) and finally, examine how the effects of the determinants of vulnerability vary at different points across the vulnerability distribution. We conclude that exposure to MGNREGS has reduced the incidence of poverty. Although chronic poverty is relatively small the high incidence of transient poverty underscores the importance of covariate and idiosyncratic shocks. Household vulnerability across the distribution of such vulnerability is also investigated. A number of factors affect such vulnerability across this distribution. In particular, this paper is the first to investigate the role of village governance in affecting household poverty and vulnerability.