Bengaluru: In the last full budget before the 2024 general elections, the government has allocated Rs 60,000 crore to the Union government's national rural jobs programme, officially called the Mahatma Gandhi Rural Employment Guarantee Act (MGNREGA). The allocation is 18% lower than allocations for the previous year, and one-third lower than the revised estimates.

This is the first time, based on data from 2014-15 to 2022-23, that the budget allocation has been lower than the previous year. The allocation for 2023-24 is the same as before the pandemic in 2019-20 despite demand for jobs in 2022-23 being 3.3% more than it was in 2019-20, and despite pending wage payments.

In 2023-24, the MGNREGA budget is 1.3% of government expenditure, which was 1.85% of government expenditure in 2022-23.

MGNREGA was implemented in 2006 with the aim of guaranteeing 100 days of unskilled employment per financial year to every adult member of a household in need. In 2022-23, a household was provided 43 days of work, on average. The scheme has nearly 152 million active workers.

Considering various costs, including wages and pending liabilities, an analysis by Peoples' Action for Employment Guarantee (PAEG), a research and advocacy group said that at least Rs 2.72 lakh crore–3% more than last year's estimate– was required in order to provide 100 days of work per household.

Allocations for critical schemes such as MGNREGA, social security pensions, maternity benefits and ICDS have all declined in real terms, said economist and social activist Jean Dreze. For MGNREGA, the budget has declined "big time", and not just in real terms, he said. "As a proportion of GDP, Rs 60,000 crore for MGNREGA is the lowest-ever figure, leaving out 2006 and 2007 when the scheme was restricted to select districts."

Over the years, the programme has been underfunded in the budget despite increasing demand, said experts. The underfunding manifests most visibly in the inordinate delays in making payments to workers for work already done under the scheme, said Rajendran Narayanan, faculty at the Bengaluru-based Azim Premji University. He said that the low allocation is "devastating" and funds available will be much lower if we consider inflation, the unpaid delay compensation and low wages.

Work demand in 2022-23 more than pre-pandemic years

The pandemic had caused widespread misery among workers, particularly migrant workers, including job loss due to the economic and employment fallouts of successive lockdowns. This forced workers in rural areas to depend on MGNREGA. In 2020-21, nearly 133 million workers–nearly twice the population of the UK–demanded jobs through the programme, the highest in its history.

"Labour markets have recovered beyond pre-Covid levels, in both urban and rural areas, as observed in supply-side and demand-side employment data," said the Economic Survey 2022-23, based on data from the government's labour force survey. According to the Centre for Monitoring Indian Economy (CMIE), a think-tank, the rural unemployment rate in September-December 2022 (7.1%) and the same period in 2021 (7.31%) was similar. But the rural unemployment rate in the September-December 2019 quarter was lower, at 6.8%.

According to MGNREGA data the demand for work fell nearly 28% in 2022-23 compared to the peak in 2020-21, but it is still higher than the demand for work before the pandemic. Between 2020-21 and 2022-23 (January 31), 118 million persons demanded work, on average, each year, compared to 83 million in the six years until 2019-20.

The Economic Survey of India 2022-23 noted that the rural job demand under MGNREGA trending around the pre-pandemic levels "could be attributed to the normalisation of the rural economy due to strong agricultural growth and a swift recovery from Covid induced slowdown, culminating in better employment opportunities."

Until January 31 2023, 3.3% more persons demanded work in 2022-23 as compared to 2019. But those who took up work–about eight in 10 persons–remained similar between 2014-15 to 2022-23.

Dreze said that due to the constrained budget for MGNREGA "we cannot interpret the employment level as a barometer of people's demand for work."

MGNREGA is not an answer to job creation, but a safety net for rural workers, said Radhicka Kapoor, economist at Indian Council for Research on International Economic Relations. "But Rs 60,000 crore is very low. As a percentage of GDP it becomes miniscule," she said. "The economic survey had mentioned that, although demand fell, it was higher than 2019-20. It is surprising that there is a slash, which will aggravate the existing problems of payment delays."

Demand is high, budget is inadequate

Since 2015, the revised allocation for MGNREGA has been higher than the budget allocations. In fact, in 2020-21, due to pandemic-related unemployment, the revised allocation was 81% more than the budget, at Rs 111,500 crore. The following year, more than a third of the year's budget had to be supplemented.

"The Ministry of Finance has just not released adequate funds to the Ministry of Rural Development," said Narayanan. "Not only are there delays in wage payments [for work under MGNREGA], but there is a huge dearth of officials to implement the programme."

A 2022 pre-budget MGNREGA analysis by Accountability Initiative, a research group, said that the biggest difference between revised estimates (RE) and budget estimates (BE) "were in years where economic slowdown was most prevalent", including during the global financial crisis in 2008, when the RE was 155% more than BE for 2008-09.

"MGNREGA is a demand driven-programme," said Dreze. "Funds are supposed to respond to employment and not the other way round."

The central government is always trying to contain spending on MGNREGA and does this by under-allocating budget funds, said Dreze. "Later in the year, funds run out, pending wages accumulate, and the government makes a supplementary allocation… [which] is typically inadequate, so wage arrears are carried over to the next year."

On average, over the past 5 years, 21% of the budget has gone into clearing the arrears of previous years, said a January 2023 pre-budget analysis by PAEG.

According to the Act, in December every year the District Programme Coordinator must prepare a labour budget for the next financial year with details of anticipated demand for unskilled manual work in his district, and the plan for works covered. The Union government should allocate funds based on that demand as MGNREGA is a demand-driven programme. But the budget allocation is instead done based on a budget agreed to by the Union government, and this process was also contested in a 2015 writ petition on payment delays and other challenges in the rural jobs programme.

In its May 2018 judgement on the issue of payment delays, inadequate workdays and funds, and the lack of a social audit of the programme, the Supreme Court rejected the contestation of this process, and said that the Union government's 'agreed to labour budget' decided by the Empowered Committee of Ministry of Rural Development are not "fixed arbitrarily" and the process is backed by statutory provisions.

Payment delays

Until January 31, 2023, the scheme had more than Rs 7,884 crore deficit or negative balance according to data. This means that the states had overspent the budget they were allocated, which would lead to payment delays including for wages.

The Act requires the creation of a National Employment Guarantee Fund and the idea was that the Fund would always have a positive balance, said Dreze. "But today, the central government is treating MGNREGA like any other budget-constrained scheme. This is the root of the annual cycle of payment delays."

The payment of wages is done in two stages. In stage 1, states generate Funds Transfer Orders

(FTO) for the wages and electronically send them to the Union government, and in stage 2 the Union government processes and makes the respective transfers.

According to January 31 data on stage 2 tracking–where the Union government processes the FTOs and wages are transferred directly to workers bank accounts–there was 11% pendency in payments amounting to over Rs 5,750 crore.

In its 2018 judgement, the Supreme Court placed the responsibility of fixing administrative

"inefficiencies or deficiencies or laxity" entirely on state governments and the Ministry of Rural Development. It said that the reasons for the delay in receiving wages "is not at all the concern of the worker...Bureaucratic delays or red tape cannot be pedalled [sic] as an excuse to deny payment of wages to the workers."

In case the payment of wages is not made within fifteen days from the date of closure of muster roll, the wage seeker is entitled to payment of compensation at the rate of 0.05% of the unpaid wages per day of delay beyond the 16th day.

As of January, 2.8% (Rs 50.8 lakh) of the payable compensation of Rs 18.1 crore had been paid.

MGNREGA wages lower than average farm wages

These delays are in addition to the fact that MGNREGA wages are lower than average farm wages in the state. Until January 31, at least 17 states and UTs had reported a lower average wage compared to the notified wages for each state. This varied from 36% less in Telangana to 1% less in Haryana. When compared to the average rural agriculture labour wage rate, it varied from 134% lower in Kerala to 2% lower in Gujarat. This means that MGNREGA workers are paid less than they would have been if they were able to find work as an agricultural worker.

MGNREGA wage rates are fixed by the Union government and are effectively frozen in real terms, and revised upwards every year only to the extent of price increases, while market wages and minimum wages are going up in real terms, said Dreze. "Instead of helping to enforce minimum wages, as intended in the initial scheme of things, MGNREGA is now helping to undermine them."

We have reached out to the finance and expenditure secretary in the Ministry of Finance. We will update the story when we receive a response.

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