Explained | The funding and demand for MGNREGA

How has budget allocation for the rural employment scheme changed over the years? How many people are demanding work under the scheme? What are the challenges facing the scheme’s implementation?

January 31, 2023 10:47 pm | Updated February 01, 2023 09:19 pm IST

Women  renovate the children’s park as part of The Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) work. at paraniputhur in Kancheepuram district on 04/10/2021

Women renovate the children’s park as part of The Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) work. at paraniputhur in Kancheepuram district on 04/10/2021 | Photo Credit: B. VELANKANNI RAJ

The story so far:

The Economic Survey 2022-23 presented on January 31, a day ahead of the Union Budget, showed that 6.49 crore households demanded work under the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS). Of these, 6.48 crore households were offered employment by the government and 5.7 crore actually availed it. The survey credited the scheme with having a positive impact on income per household, agricultural productivity, and production-related expenditure. It added that this helped with “income diversification and infusing resilience into rural livelihoods”.

How important is MGNREGA to rural employment?

The Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) was passed in 2005 and aimed at enhancing the livelihood security of households in rural areas. Under it, the MGNREGS is a demand-driven scheme that guarantees 100 days of unskilled work per year for every rural household that wants it, covering all districts in the country except those with a 100% urban population.

Also read: In NREGA reforms, prioritise the worker and her dues

There are currently 15.51 crore active workers enrolled under the scheme. The types of projects undertaken for employment generation under MGNREGA include those related to water conservation, land development, construction, agriculture and allied works.

Under the scheme, if work is not provided within 15 days from when it is demanded, the worker has to be given a daily unemployment allowance. Additionally, the wages of unskilled workers also have to be paid within 15 days and in case of a delay, the Centre has to compensate them. Beyond being a form of insurance or safety net for the country’s poorest rural households, the scheme proved to be beneficial not just for rural workers but migrant labourers as well especially during the COVID-19 pandemic which saw large-scale reverse migration.

During the first COVID-19 lockdown in 2020, when the scheme was ramped up, and given its highest-ever budget of ₹1.11 lakh crore, it provided a critical lifeline for a record 11 crore workers. Studies gave empirical evidence that wages earned under MGNREGA helped compensate somewhere between 20% to 80% of the income loss incurred because of the lockdown. This is reflected in the fact that the demand for work under MGNREGA spiked to record-high levels during the pandemic years. About 8.55 crore households demanded MGNREGA work in 2020-21, followed by 8.05 crore in 2021-22, compared to a total of 6.16 core households asking for work in the pre-pandemic year 2019-20.

No of persons that demanded work under MGNREGA form  2019-20. Source: Economic Survey 2022-23

No of persons that demanded work under MGNREGA form 2019-20. Source: Economic Survey 2022-23

While Finance Minister Nirmala Sitharaman said in the Lok Sabha during the Winter Session in December 2022 that the demand for jobs under MGNREGA has been declining in the recent past, the new economic survey data revealed that as of January 24 this year, 6.49 crore households had already demanded work under the scheme with two more months till the financial year ends. Notably, this demand-side figure is still larger than pre-pandemic levels, which indicates that despite the lifting of pandemic curbs and changes in migration trends, rural households are still demanding work under the scheme. Besides, the pandemic-induced demand surge notwithstanding, the Ministry of Rural Development informed Parliament in August last year work that demand under MGNREGS has doubled in the last seven years, that is, 3.07 crore households demanded work in May 2022 compared to 1.64 in the same month in 2015.

How has the Centre’s allocation for MGNREGS changed over the years?

Budgetary allocations to the flagship scheme has increased successively since 2013 from ₹32,992 crore in the 2013-14 Union Budget to ₹73,000 crore in 2021-22. However, in recent years, the actual expenditure on the scheme has successively been higher than the amount allocated to it at the budget stage. For instance, in 2021-22, while ₹73,000 crore was allocated to MGNREGS, supplementary allocations made later pushed up the revised estimates to ₹98,000 crore, as funds had run out in the middle of the year. Even so, the Central government once again allocated ₹73,000 crore (25% lower than the previous year’s revised estimate) for the scheme in budget 2022-23, then seeking an additional ₹45,000 crore as supplementary grants in the Winter Session in December.

The Parliamentary Standing Committee on Rural Development last year questioned the rationale behind the Centre’s budgetary allocations to MGNREGA. Pointing out that despite the total expenditure on the scheme in 2020-21 being around ₹1,11,170.86 crore, the panel found it “perplexing” that the budget estimate (BE) for 2021-22 was just ₹73,000 crore. It also flagged the substantial hike in allocation at the revised estimates stage in order to augment the initial sum each year. Advocacy group NREGA Sangharsh Morcha noted that “every year, about 80-90% of the budget gets exhausted within the first six months”, leading to a slowdown of work on the ground and a delay in wage payments to workers.

What are the challenges to its implementation?

While the scheme guarantees 100 days of employment per household per year, an analysis by PRS Legislative Research shows that since 2016-17, on average, less than 10% of the households completed 100 days of wage employment. Besides, the average days of employment provided per household under the MGNREGS fell to a five-year low this financial year. As of January 20 this year, the average days of employment provided per household is just 42 days, while it was 50 days in 2021-22, 52 days in 2020-21, 48 days in 2019-20 and 51 days in 2018-19.

While a full 100 days of employment has not been provided per year, the Parliament Committee and activist groups have strongly recommended an increase in the number of guaranteed days of work per household from 100 to 150 so that rural populations have a safety net for a longer period in the year.

Notably, Peoples’ Action for Employment Guarantee (PAEG) and the NREGA Sangarsh Morcha said in a joint statement on Tuesday, that if the government intends to provide legally guaranteed 100 days of work per household for at least those that worked in the scheme in the current financial year, that minimum budget for it in the upcoming financial year 2023-24 should be at least ₹2.72 lakh crore.

Another issue that continues to hamper the scheme’s proper implementation is the delay in wage payments. As per data released by the Centre, it owed ₹4,700 crore in MGNREGA wages to 18 States as of December 14, 2022, when just three months remained for the financial year to end. Notably, In 2016, the Supreme Court of India directed the government to ensure that wages were paid on time, calling the act of making workers wait for wages for months equal to “forced labour”. Additionally, as of December 14, the government also owed ₹5,450 crore worth of material costs (for MGNREGA projects) to 19 States. Furthermore, the delay in material costs, has a domino impact on the MNREGA work, since a delay in payment breaks the supply chain. Because of the prolonged delays in payments, vendors are reluctant to supply materials for any new work.

Another concern pointed out by a panel of the Rural Development Ministry is that the minimum wage rate under MGNREGS is fixed by the central government on the basis of the Consumer Price Index-Agricultural Labourers. It noted that the type of work done by agricultural labourers and MGNREGS workers was different, suggesting that minimum wage be decided vis-a-vis the Consumer Price Index-Rural, which it said was more recent and provided for higher expenditure on education and medical care.

Fake job cards, widespread corruption, late uploading of muster rolls, and inconsistent payment of unemployment allowance are some of the other issues hampering the implementation of MGNREGA, the Parliamentary Committee pointed out last year.

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