A better way to fix MGNREGS

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The problems of the rural job scheme should be tackled through stricter monitoring, not by burden-sharing

MGNREGS, labour work, rural job scheme  workers,

Illustration: Binay Sinha

A K Bhattacharya

The Mahatma Gandhi National Rural Employment Guarantee Scheme or MGNREGS appears to be under scrutiny. It may even be overhauled, if recent media reports are to be believed. MGNREGS was launched by the United Progressive Alliance (UPA) government after the passage of a legislative Bill in 2005 to provide for at least 100 days of work at specified wage rates for each rural household in a year.

Despite many doubts and questions that MGNREGS was subjected to over the past several years, it appears to have stood the test of time, not least because it turned out to be a major instrument for helping rural workers during the Covid years. Indeed, as the accompanying chart shows, the use of MGNREGS funds has a direct correlation with the level of economic distress in the Indian economy.

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Within a couple of years of its launch, economic growth in the country dipped to 3.1 per cent in 2008-09, thanks to the global financial crisis. It was a sharp decline from the 7.7 per cent growth in 2007-08. Although gross domestic product (GDP) recovered in the following years, the impact on jobs was significant. Not surprisingly, job demand and the money spent under MGNREGS spurted.

Something similar happened during the Covid years. Even as managers of the Indian economy were battling its worst contraction, the scheme for creating rural jobs turned out to be a useful tool, with the demand for jobs under MGNREGS jumping in 2020-21. Indeed, since the launch of MGNREGS, the only years when the share of financial outlay for this scheme rose above 3 per cent of the total annual Union government expenditure, or above 0.5 per cent of GDP, were the ones when the Indian economy was struggling to deal with the impact of either the global financial crisis or the Covid pandemic.

If MGNREGS has indeed proved to be handy in times of economic distress, what could be the reasons for overhauling it? As the accompanying chart shows, the financial burden on government finances decreases with the decline in the intensity of economic distress and the consequent demand for jobs. For instance, MGNREGS accounted for only 1.9 per cent of the Centre’s total expenditure in 2023-24, a level that prevailed in 2014-15 or even earlier in 2006-07, when the demand for jobs was much lower as the economy was in better shape.

And if the demand for rural jobs continues even after the crisis years, it is a signal to policymakers that not all is well with the rural economy, in particular. Thus, the demand for jobs under MGNREGS also provides an indication to policymakers if there are signs of economic distress in rural India, which plays a significant role in sustaining demand in the economy.

But it appears that MGNREGS has caused concern for the government and, therefore, prompted its review for two specific reasons. One, MGNREGS is one of those schemes where the Centre alone bears the entire cost of running it, but the work done under the scheme is monitored by the states. It is argued that if the states have a financial stake in the scheme, the quality of the work funded under MGNREGS will improve, leading to the creation of more productive and useful assets.

The second factor at play is the possibility of some states misusing the provisions of the scheme. MGNREGS is meant to be a demand-driven scheme where money should be spent on projects only when there are distressed workers seeking jobs. Existing projects that are to be implemented by the states under their own respective budgets should not be financed through MGNREGS outlays. At present, the lack of monitoring can result in such unintended use. Media reports note that such misuse appears to be more prevalent in states where the wages are relatively high, and these states could be diverting the scheme’s outlays to fund their own welfare schemes.

There is yet another trend that could be a cause for concern. Data for the last few years shows that between 2018 and 2022, West Bengal was the largest user of funds under MGNREGS, followed by Tamil Nadu, Andhra Pradesh, Uttar Pradesh, Madhya Pradesh, Rajasthan and Karnataka. Moreover, the data for 2023-24 showed that just five southern states — Andhra Pradesh, Karnataka, Kerala, Tamil Nadu and Telangana — accounted for over a third of the total money spent by the Centre on MGNREGS. In 2022-23 and 2023-24, West Bengal was denied funds under this scheme as per Section 27 of the MGNREG Act, 2005, due to non-compliance of directives of the Union government.

The obvious question that arises, therefore, is if the Centre has the powers to withhold funds under the scheme from a state that is non-compliant of the rules, why cannot the machinery to monitor the utilisation of MGNREGS funds be strengthened to prevent such misuse? The idea of asking the states to share a part of the costs of running MGNREGS appears to be an easy prescription without addressing the key concerns arising out of the scheme’s misuse. Asking the states to share 20 or 40 per cent of the expenditure incurred under MGNREGS in their respective states would only reduce the fiscal burden on the Centre, not solve the problem of fund misuse. In any case, the law will also have to be amended if the states are made to share the cost of the scheme. MGNREGS is one of many useful short-term instruments for tackling a jobs crisis in rural India. The Centre should be focused more on fixing its implementation problems perhaps through a collaborative monitoring mechanism, instead of just reducing its fiscal burden.

These are personal views of the writer. They do not necessarily reflect the opinion of

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