Mint Explainer: The bigger picture behind MGNREGA cuts

The budget has cut the outlay for MGNREGA but sharply increased spending on other rural development schemes like the Pradhan Mantri Awas Yojana and Jal Jeevan Mission, indicating a clear focus on building durable rural assets Has gone.

This targeted rural capital expenditure can not only generate employment but also have a multiplier effect promoting long-term rural development. MGNREGA has been more a demand-driven employment program than a tool to create durable assets, and the scheme needs reform. It is not a free cash transfer scheme and has a wide mandate – from building water conservation structures to roads and toilets.

Controversy over MNREGA

Finance Minister Nirmala Sitharaman has made a huge cut in the budget of Rural Employment Scheme in the latest budget. only about Rs 60,000 crore has been allocated to MGNREGA this year, which is about 33% less than the Revised Budget Estimate of the scheme in this financial year. much less than Rs 73,000 crore was estimated for the scheme in last year’s budget.

The decision has angered the opposition and activists, who have accused the government of “murdering the law”. In fact, People’s Action for Employment Guarantee and NREGA Sangharsh Morcha have estimated that the outlay of the scheme requires 2.72 trillion promised to provide 100 days of employment to all families covered under the law this year.

defending the government

The government appears to have made a three-pronged argument in its defence. First, MGNREGA is a demand-driven employment guarantee scheme and the actual expenditure may be much higher than the budget. For example, in FY22, the Center spent approx. 98,500 crore on MNREGA, whereas the budget amount was 73,000 crores. In FY21, the corresponding figures were 1.1 trillion and 61,500 crores.

Second, the government said it has opened avenues for job creation in rural India through other schemes. Allocation for PM Awas Yojana-Gramin (PMAY-G) was almost the highest ever 54,500 crore while the outlay for Jal Jeevan Mission (JJM) has been increased 60,000 crores to 70,000 crores.

Third, it is argued that many rural workers will return to cities with the pandemic reducing job demand under MGNREGA.

big picture

Beyond the government’s clear and stated position, Prime Minister Narendra Modi and his team are attempting to restructure and overhaul the Centre’s schemes for rural India with an emphasis on sustainable asset creation.

At present, MGNREGA follows the 60:40 rule – while 60% of the funds are reserved for wages, the other 40% is for materials to create assets. However, many states, including some of the more developed states in the south, are spending far more on wages. In some financial years, the national average wage component in MGNREGA was more than 70% and the rest was reserved for material.

In a 2020 research paper on MGNREGA, The Institute for Social and Economic Change, Bangalore observed: “At this ratio, creating durable and sustainable assets can be difficult. Moreover, no resources have been earmarked for the maintenance of such assets and hence, the assets created under MGNREGA are of poor quality and often deteriorate very rapidly.”

In fact, in some years, states like Tamil Nadu and Kerala have spent less than 10% on content. This is grossly inadequate given the broad mandate of MGNREGA – from water conservation and water harvesting structures to construction of roads and houses and land development works.

Modi’s emphasis on rural capex

The Center is concerned that not enough stress has been given to creating durable assets under MGNREGA, which can have a multiplier effect, improving demand and living standards in the long term in large areas of rural India. For example, building roads deep within rural India can connect remote areas to larger towns and cities, thereby boosting economic activity.

Inadequate push on asset creation under MGNREGA would make it a free cash transfer scheme and is not sustainable in the long run, even undesirable. A rapidly growing economy should create enough jobs for all.

This also explains the higher outlay of PMAY-G and JJM. These schemes are focused on the creation of durable assets in rural areas – they are expected to create employment in the near term and raise living standards in the long term. PMAY-G targets ‘Housing for All’, while JJM hopes to create a robust water supply infrastructure and give functional tap connections to every rural household.

All this fits well into the planned capex thrust of the Modi government. Schemes like PMAY-G and JJM will give a boost to rural capex. The reorientation of MGNREGA will also boost long-term job creation in rural India.