Can Workfare Serve as a Substitute for Weather Insurance? The Case of NREGA in Andhra Pradesh

This report assesses whether a workfare program for rural areas in India, the National Rural Employment Guarantee Act (NREGA), allows participants to cope with effects of weather shocks.

Study findings indicate that the relationship between changes in income and participation in NREGA is strong. Other findings include:

• NREGA provides money to poor households when they most need it;
• Sub-district level aggregate NREGA participation does respond to income shocks caused by fluctuations in weather;
• NREGA participation levels are more responsive to weather-induced shocks than other government welfare programs;
• Workfare can be an effective policy tool for mitigating effects of aggregate shocks.

Findings suggest that NREGA may have a long term effect, based on the magnitude of funds flowing through the program. If households are able to use NREGA as an ex post substitute for formal weather insurance, they may be able to shift away from investments in low-risk, low return assets.