COVID pain: MGNREGA is just what the doctor ordered, but needs more funds

From being the poster boy of the UPA government’s welfare schemes in 2005, to being derided as a failed policy by NDA 1.0 in 2015, to being hailed as an economic life-saver amid the pandemic by NDA 2.0 in 2021, the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) programme has come a long way.

The mandate of MGNREGA, a scheme overseen by the Union Ministry of Rural Development, is to provide at least 100 days of guaranteed wage employment in a financial year to every rural household whose adult members volunteer to do unskilled manual work. The daily wage varies from State to State, ranging from ₹190 to ₹310 a day. This makes sure each rural family earns at least this amount for 100 days in a financial year to keep hunger at bay.

The Centre bears 90% of the funding, while the States bear the balance 10%.

Budget wish-list of States, other stakeholders

Greater outlay. A Parliamentary Standing Committee on Labour has recommended that the Union government enhance the budgetary allocation for the scheme, and increase the work allocation to 200 days — if not 250 days — from the current 100 days. Economic observers have pointed to the severe fund crunch in the scheme, considering how critical it is to the rural economy.

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The number of people seeking work under the scheme increased by 43% to 13.3 crore in 2021-22. However, the Union government reduced the allocation for the scheme by 35%, said reports.

In a note, rating agency ICRA estimated the required outlay for the scheme at ₹75,000 crore for the coming year, in the base scenario that 6 crore households will be provided employment, assuming no severe COVID variant emerges. Timely outflows under the scheme would not only address poverty, but also “bolster confidence and consumption demand” in the rural areas, thereby helping the rest of the economy, it said.

More fund allocation to States. The States’ principal demand from the Centre is greater budgetary allocation for welfare schemes, of which MGNREGA is a vital one. Last month, Union Finance Minister Nirmala Sitharaman held a pre-Budget consultation with State finance ministers, where the latter asked the Centre to increase its share in the scheme. The pandemic has substantially eroded State finances, they pointed out.

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Rajasthan, Tamil Nadu and West Bengal, among others, pointed out that the Union government’s share in Centrally sponsored schemes has been brought down over the years. Also, the number of Central schemes aimed at supplementing the efforts of the State governments (which have lower resources) was reduced from 66 to 50.

When the Central allocation falls short, States are forced to turn to their own funds, which are mostly inadequate. Last year, by as early as October, 21 States were showing a negative net balance; among those that fared worst were Andhra Pradesh, Tamil Nadu and West Bengal. It is this situation that the States want averted with a higher budgetary allocation.

Curbing irregularities. Several loopholes and irregularities in the implementation of the scheme have been recorded, and plugging these could benefit more people. Labourers complain of difficulty in getting work under the scheme. Often, payment gets delayed.

For instance, a social audit unit (SAU) of Jharkhand’s Rural Development Department found that workers were listed on the records but were missing from work sites. There have been reports of syphoning of funds by contractors; keeping this in check will ensure the benefits actually reach the poor.

A scheme for the urban poor. The ICE360 Survey 2021, conducted by Mumbai-based think-tank People’s Research on India’s Consumer Economy (PRICE), found rising poverty in urban centres due to the COVID pandemic. While 10% of the poorest one-fifth of the Indian population lived in urban areas in 2016, the figure rose to 30% in 2021, it revealed. Retail shops, restaurants, hotels and tourism — all of which employ unskilled workers — have been hit hard by the pandemic, and millions of jobs have been lost.

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In this circumstance, there is a growing call to expand the scope of MGNREGA, or launch a separate scheme on similar lines, to provide jobs to the urban poor, too.

Six States are reported to have already begun pilots for an urban jobs scheme, but their cash crunch would be an impediment. Hence, it falls on the Centre’s shoulders.

The politics of a welfare scheme

In its early years, MGNREGA faced much criticism from economic experts, political parties and the media. It was called a populist scheme devised to woo the rural vote bank. The fixed labour cost and compulsion to employ from a pool of unskilled labourers would push up project costs and lead to inflation, said critics. Economists weighed the merits of the scheme and found it wanting. It would be far simpler to give doles, they pointed out.

In February 2015, less than a year after he took over, Prime Minister Narendra Modi, in Parliament, famously called MGNREGA a symbol of the UPA’s policy failures. Yet, when the COVID pandemic struck in March 2020 and led to a stringent lockdown that left millions of Indians wage-less, when lakhs of migrant labourers headed back home — even by foot — it was MGNREGA that saved the day.

What was essentially designed as a fallback option for the poorest of the poor became the primary source of income for numerous households.

Economic booster in COVID years

As the pandemic and lockdowns battered industries and the GDP contracted 7.3% in 2020-21, millions of jobs were lost. Subsequently, the economy picked up and the first advance GDP estimate for 2021-22 stands at 9.2%. However, not all the jobs that were lost came back. The decline in non-farm employment opportunities, as well as the return of migrant workers to their hometowns, have led to a surge in demand for MGNREGA jobs over the past two years.

In the pre-pandemic year of 2019-20, around 7.88 crore individuals worked under the scheme. In 2020-21, this rose 42% to 11.19 crore. This fiscal year, as of January 2022, 9.52 crore individuals have used the scheme.

So vital has MGNREGA turned out to be over the past two years that the Centre has been forced to increase its outlay to meet demand. In 2020-21, as part of its stimulus packages, the Centre raised the allocation to ₹1.1 lakh-crore, against the original budgetary allocation of ₹61,500 crore. It also approved the allocation of ₹33,000 crore to States for MGNREGA work.

This fiscal, again, additional allocations were made over and above the ₹73,000 crore budgetary allocation. It was still well below the actual expenditure of ₹99,770 crore, data revealed.

Surprising trends

The COVID years have seen a surge in demand for MGNREGA jobs from young people. The scheme employed 1.1 crore people in the 18-30 age bracket this fiscal as of December 2021, against 1.2 crore in all of 2020-21 and 56 lakh the previous fiscal. On the other hand, the share of those in the 31-40 age group remained close to its five-year average of 29.2%.

Another element that has surprised economists is that even after the second wave of the pandemic abated, in late 2021, the demand for work under the scheme remained high. Since November 2021, it has seen a spike, which may be a pointer to the rural distress that cannot be attributed to lockdowns.

According to data on the MGNREGA portal, 2.1 crore and 2.47 crore households demanded work under the scheme in November and December 2021, respectively. In October, the number was 2.07 crore.  This tallied with the 7.9% monthly unemployment rate record seen in December.