By Andrew MacAskill, Unni Krishnan & Tushar Dhara – Apr 5, 2013 , Bloomberg

The corpse of Indian farmer Bengali Singh burned to ash atop a blazing funeral pyre on the banks of the river Ganges in 2006.

Five years later, the dead man was recorded as being paid by India’s $33 billion rural jobs program to dig an irrigation canal in Jharkhand state. Officials in his village and the surrounding region used at least 500 identities, including those of Singh, a disabled child of eight and a blind 94-year-old man, to fake work logs and steal wages, according to police reports.

Elderly villagers work at a site as part of the National Rural Employment Guarantee Act at Nazir ka Mandir in the Karauli district of Rajasthan in Feb. 2011. Photographer: Sanjit Das/Panos

$10 Billion Graft Revealed in Indian Jobs Program


April 5 (Bloomberg) — Records for India’s $33 billion rural jobs program show local officials have used tactics such as ghost workers, fake projects and over-billing to steal about $10 billion of funds intended to help impoverished villages. Bloomberg’s Baden Campbell reports. (Source: Bloomberg)

Laborers try to revive a dried lake under the National Rural Employment Guarantee Scheme at Ibrahimpatnam on the outskirts of Hyderabad, India, on June 16, 2009. Photographer: Mahesh Kumar A./AP

Rajendar Singh holds up his father Bengali Singh’s photo in Bishanpur, India. Bengali Singh’s name was used by officials to steal wages after his death. Photographer: Unni Krishnan/Bloomberg

Manmohan Singh, India’s prime minister, center, watches as Jairam Ramesh, rural development minister, right, hands an award to Sonia Gandhi, president of the Congress Party and chairman of the national advisory council, for her to present to the award’s recipient during the inauguration of the 6th Mahatma Gandhi National Rural Employment Guarantee Act in New Delhi, on Feb. 2, 2012. Photographer:Mohd Zakir/Hindustan Times via Getty Images

“It’s an insult to a man who lived a life of dignity,” Rajendar Singh said, sitting next to the parched canal his father supposedly excavated in their village, Bishanpur, about six hours’ drive northwest of Kolkata. “He’s been wronged.”

District administrators and village heads have used tactics such as ghost workers, fake projects and over-billing to embezzle about $10 billion from the world’s largest workfare initiative, an investigation by Bloomberg News shows. The fraud in the seven-year-old program underscores the challenge of reducing poverty in India as graft permeates everything from food aid for children to the distribution of public grain stockpiles and debt relief for struggling farmers.

Embezzlement remains an intractable issue in the rural employment push, according to D.H. Pai Panandiker, president of the RPG Foundation, a New Delhi-based economic research group.

“The bulk of the spending is a complete waste of money,” he said in an interview. “There is so much corruption and the assets being built are either worthless or not durable. The government cannot afford to throw money away like this.”

Police Reports

Bloomberg News compiled hundreds of pages of police documents and interviewed dozens of people from January through March across three states to examine the looting in Prime Minister Manmohan Singh’s flagship welfare program.

The premier is trying to stem the losses to help rein in India’sbudget deficit. The opposition has also attacked the government over graft before a general election due by May 2014.

When he implemented the Mahatma Gandhi National Rural Employment Guarantee Act in 2006, Singh said it would give “hope to those who had all but lost their hope.

Police are probing more than 2,000 cases of corruption spanning 100 projects in just one district of Jharkhand, close to the Bangladesh border. They include funds for a well to be used by only one landowner and payments toward an irrigation canal that was never constructed. Dry earth, cracked by the sun, covers the area where the channel was supposed to be, near Bishanpur.

$730,000 Bribe

At least 60 percent of the expenditure in Jharkhand under the act has been pilfered, according to Nishikant Dubey, the member of parliament in New Delhi for Godda, one of the state’s districts. That amounts to more than $115 million in the fiscal year ending March 2013 alone, based on governmentdata.

“It’s a tragedy, it’s happening everywhere,” Dubey, a member of the main federal opposition Bharatiya Janata Party, said in an interview in his office in New Delhi. “I keep telling my officials that this is money for the poor so please don’t steal from it, but they don’t listen.”

Dubey recounted how his home phone rang at 3 a.m. the day after an anti-graft panel he heads scrapped $1.3 million of rural works projects in Godda in 2009, on suspicion of fraud. The voice at the other end offered a bribe of $730,000 to help reverse the decision, he said.

In certain areas the program suffers from corruption and the government is overhauling it, according to Rural Development Minister Jairam Ramesh, who oversees the workfare initiative.

‘Police Inspector’

Fighting such graft — as well as making sure that legitimate workers get paid — is mostly up to India’s 28 states, as the federal government’s role is restricted to funding, monitoring and auditing, he said.

“I’m not a police inspector,” Ramesh said in a February interview in his office in New Delhi. “Ultimately, the officials are not accountable to us. They are accountable to the state governments. I’m not looking at how much corruption there is in this program. That’s not my job. I don’t come here to sniff around.”

The government has made changes since 2011 to try to reduce looting from the rural works initiative. The steps have included efforts to improve financial audits at state and federal levels and the establishment of so-called social audit units to help village officials collect, verify and air claims of graft.

Starvation Buffer

The program is meant to be a buffer against starvation and improve rural livelihoods and public infrastructure in a nation where 824 million people live on less than $2 per day, according to World Bank data.

It guarantees 100 days’ work each financial year in projects from road building to water management to every household whose adult members offer themselves for unskilled manual work. The daily wage starts at 135 rupees ($2.48).

About 30 percent of India’s 168 million rural households have been provided with employment under the initiative each year since 2008, Rural Development Ministry figures show.

Some states, such as Andhra Pradesh in India’s south, are tackling the graft in the jobs act. There, a team of auditors visits every eight months on average and hears complaints at public hearings from those who say they’ve been victimized. The auditors then follow up if necessary.

The workfare push is part of a wider rise in welfare spending by the Congress party that helped propel it to re- election in 2009.

The expenditure has also stoked inflation and contributed to India’s $100 billion budget deficit. The shortfall, the largest in major emerging nations as a portion of the economy, equaled 5.2 percent of gross domestic product in 2012-2013.

Fake Cards

India’s Rural Development Ministry estimates 30 percent of the 1.8 trillion rupees spent nationally since the program began has been lost through graft. The budget on Feb. 28 allocated a further 330 billion rupees for the fiscal year through March 2014.

The alleged scam in Godda, where Bishanpur is located, used fake job cards to claim wages for imaginary labor, according to the police report.

One of the identities stolen was of 94-year-old Akal Sah, who is deaf and blind. Using a stick, Sah limped from his hut down a dirt path to the center of Bishanpur, then collapsed to the ground, exhausted by the short walk. Villagers hauled him to his feet before explaining how his name was misused.

The records of the jobs program have Sah spending eight hours a day for a week in 2011 shoveling earth from a pit. One of his co-workers was a disabled eight-year-old child, Suvitha Devi. Frail and malnourished, Devi struggles to lift her right arm or speak clearly after a bout of meningitis at an early age.

Most Vulnerable

“How can she possibly have done any of this work?” said her father, Prakash Singh, whose sunken cheeks and creased face showed his 65 years. He was speaking in an interview near their home, built of mud and topped with a thatched roof.

Mohammad Idris, the husband of the deputy head of Bishanpur and an informal village leader himself, found Devi’s and Sah’s names while investigating project records after residents complained to him they weren’t getting paid. He reported his discovery to the police.

“The most vulnerable people are targeted as they are the least likely to complain,” Idris said, standing next to a barren field where records show an irrigation ditch should have been built. “It’s all too easy.”

Police in December accused Ghulam Rasool, a wiry farmer with thick black glasses, and his wife Zubeida Khatoon, the village headwoman, of orchestrating the fraud in Bishanpur. Post-office workers created the job cards and a village secretary and a computer operator also aided the scam, according to the charges.

Thumb Prints

The chargesheet, obtained by Bloomberg News from district officials, says the pair ordered postal staff to withdraw money in the name of dead or fake workers. False finger and thumb prints were used in payment receipts to enable the fraud. The money was then divided among the perpetrators, including the village headwoman and other officials, according to the chargesheet. It didn’t detail how much was stolen.

Rasool and Khatoon haven’t been arrested.

Rasool denied theft in an interview in his home, which was sparsely furnished with plastic chairs and an old bed.

“We’re guilty only of negligence,” he said during an hour-long defense of his actions. “It was impossible to keep track of everyone.”

The top Jharkhand government bureaucrat in the district of Godda, K. Ravi Kumar, sought to downplay the police’s case, saying the issue of dead and phantom workers is a trivial one.

‘Kind of Leakage’

“Scam is a very big word,” Kumar said in an interview in his office in a shabby two-story government building, an hour’s drive from Bishanpur. “It’s not a scam. It’s more a kind of leakage.”

The leakages — village by village, district by district, state by state — add up to billions of dollars, government records show.

Only 42 percent to 56 percent of the employment reported by the jobs program is confirmed by data from India’s National Sample Survey Office, a joint study by Princeton University and the Paris School of Economics shows. That suggests about half the work is genuine.

One-fifth of rural works planned under the jobs act in the 12 months through March 2012 were completed in that period, and the figure has never exceeded 51 percent in any fiscal year, according to a paper co-written by Raghav Gaiha, who taught public policy at the University of Delhi.

No Work

Gaiha researched the jobs program for a forthcoming book, “Battling Corruption: Has NREGA Reached India’s Rural Poor?” He said in an interview in New Delhi that he crisscrossed four states to visit 35 work sites, finding no activity at any.

The program’s difficulties come as India’s economy slows and inflation accelerates. Consumer prices climbed almost 11 percent in February from a year earlier, one of the fastest rates in the world. Private investment in factories and machinery has declined.

The nation’s economy expanded 5 percent in 2012-2013, the weakest pace in a decade, according to the statistics agency.

Singh began policy changes in September to revive growth and trim the fiscal deficit, while shielding welfare expenditure from cuts to build support ahead of the general election.

The market-opening measures cost the coalition its parliamentary majority last year. A key ally withdrew support over a step to allow overseas retailers such as Wal-Mart Stores Inc. (WMT) to invest in setting up supermarkets, on the concern that family-run stores would be forced to close.

Safety Net?

Congress Party President Sonia Gandhi, the widow of assassinated former Prime Minister Rajiv Gandhi, mentioned reports of corruption in the jobs program in a speech on Feb. 2, saying that such graft must be curbed.

Gandhi, a champion of rural workfare, chairs the National Advisory Council, which backed the initiative.

Prime Minister Singh has defended the jobs act, saying in a speech last year that it may be the coalition’s “most popular and successful” policy. It offers a safety net, boosts rural wages and has the potential to revitalize farming by creating “durable water assets,” he said.

Singh also said the government isn’t fully satisfied with the way the program is working and that gaps need to be fixed.

About $20 billion has been paid in wages to rural families and 50 million households have received employment every year on average since 2008, the government said in a report in 2012.

World’s Largest

It’s the more developed Indian states that are better positioned to control corruption in the jobs law, said Sandip Sukhtankar, an assistant economics professor at Dartmouth College in Hanover, New Hampshire.

That’s partly because some states have more robust social audits, Sukhtankar said in a telephone interview. He specializes in corruption studies and described the rural jobs system as the world’s largest workfare program in an article last year.

In Andhra Pradesh, where per-capita income is 10 percent higher than the national average, the sixth round of audits since 2008 reached Narayankhed, about 145 kilometers (90 miles) northeast of the state capital, Hyderabad, in February.

About 300 people sat in a makeshift tent, mostly residents of nearby villages with complaints about the jobs program, alongside staff accused of the wrongdoing. A dozen policemen clutching cane batons stood nearby to keep order.

The auditors, after checking employment logs, receipts for building materials and construction work, aired charges of underpaid wages and incomplete projects.

Stolen Pay

By the end of the hearing, 15 cases were selected for further action, such as the recovery of stolen pay.

“It’s the first time that government officials have been held accountable for money owed to us,” said Peddi Ramaiah, who attended the audit and said he was underpaid wages.

Still, graft remains a problem in Andhra Pradesh.

At least 1.4 billion rupees has been lost through corruption in the jobs program in the state, and only 15 percent has been recovered, based on data from the local government. Just two-fifths of the 30,117 staff implicated have faced disciplinary action or suspension, according to the figures.

One of the villagers attending the audit, Malla Ganesh, pointed to a flaw in the process: the risk of reprisals against those who complain.

“A lot of the villagers haven’t come for the hearing for fear of retribution later,” said Ganesh, who lives in Narayankhed.

In Bishanpur, Rajendar Singh surveyed the bone-dry irrigation canal that is now among the cases being investigated.

The ditch fails to retain water and hasn’t been used since it was completed last year, he said. Excavated mud lies on one side and nearby fields, baked brown by the heat, aren’t being cultivated.

“The wrongdoers should be punished,” Singh said. “But the way things are now, I don’t think a lot will really change. Officials will carry on stealing from the jobs program. We will continue to struggle.”

To contact the reporters on this story: Andrew MacAskill in New Delhi at[email protected]; Unni Krishnan in New Delhi at [email protected]; Tushar Dhara in New Delhi at [email protected]

To contact the editor responsible for this story: Peter Hirschberg at[email protected]; Stephanie Phang at [email protected]