Sub-Par Wage Hike, Declining Allocation: Double Whammy for MGNREGS

The original version of the article was published on 31st March 2023 in “The Daily Guardian.

According to a study conducted by the National Council of Applied Economic Research (NCAER) and the University of Maryland, the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) helped reduce the incidence of poverty in rural areas by up to 32 per cent and prevented 1.4 crore people from falling into poverty. The study was based on data from 26,000 rural households in two rounds of a survey conducted in 2004-05 and 2011-12 and reaffirms the positive impact of MGNREGS on rural lives and livelihoods.

Interestingly, while both the scope and scale of MGNREGS have expanded in the last few years with new-age tools used for implementation and the scheme's enlarged focus on providing skill upgradation to its beneficiaries, the budgetary allocation for the scheme has recorded a decline. While the revised budgetary estimates and the actuals record increased financial spending, the budgetary allocation for the next year is still lower than the previous year.

The scheme, under which a total of 11.37 crore households availed employment and 290 crore person-days employment was generated till 15th December, 2022, witnessed a wage hike recently, varying between two to ten per cent for different states.

The impact of the scheme on the lives of rural residents in the form of providing assured employment and increasing the asset base of rural areas cannot be emphasised enough and calls into question declining fund allocation and measly increases in wages.

Taking it Beyond Unskilled Work

MGNREGS is a demand-driven employment guarantee scheme which guarantees at least 100 days of paid employment (in the form of unskilled manual work) in a financial year to every rural household. The scheme is premised on the need to create employment and generate productive assets in rural areas thereby supporting rural livelihoods and generating beneficial assets for the overall improvement of lives.

In the past few years, new additions to the MGNREGS have improved the implementation and scope of the scheme beyond the basic provision of guaranteed employment. The government introduced GIS-based Planning of Gram Panchayats as an integrated and comprehensive planning process based on ridge-to-valley concepts for watershed development.

To ensure timely and hassle-free disbursement of payments under the scheme, the government introduced the National Electronic Fund Management System for direct benefit transfer. By December 2022, 99 per cent of MGNREGS wage earners received their pay directly in their bank or post office accounts, moving the scheme's implementation towards openness and more transparency. Steps taken in the direction of making MGNREGS more effective in uplifting rural lives include SECURE to digitise the creation and approval of estimates for MGNREGS projects, Geo-MGNREGA to geo-tag all projects implemented under MGNREGS, and the launch of UNNATI to upgrade the skill base of MGNREGS workers.

However, measures to improve the functioning and impact of MGNREGS are not commensurate with wage hikes or budgetary allocations for the scheme.

From Low Wage Hikes to Declining Interest

On 24th March 2023, the Union Ministry of Rural Development notified a hike in wage rates under the rural job guarantee programme for the Financial Year 2023-24. The hike, applicable from 1st April 2023, ranges from Rs. 7 to Rs. 26, or between two per cent to ten per cent for different states. Rajasthan registered the highest percentage increase in wages up from Rs. 231 in 2022-23 to Rs. 255 per day for the upcoming year. Chhattisgarh and Madhya Pradesh, with the lowest current daily wages at Rs. 221, recorded a 17 per cent increase from last year when the daily wage was Rs. 204. Karnataka, Goa, Meghalaya, and Manipur are among the states that registered the lowest percentage increase. The wage rate hike for the 2023-24 financial year leaves Haryana with the highest daily wage at Rs. 357 per day with Madhya Pradesh and Chhattisgarh having the lowest at Rs. 221. Last year, 21 out of 34 states and Union Territories got less than a five per cent increase and ten states got a more than five per cent hike in daily wage rates. Three states — Manipur, Mizoram and Tripura — recorded no increase in wage rates during the previous financial year.

At a time when demand is at an all-time low and the after-effects of COVID-19-induced lockdown are still evident in the informal sector, experts have called out the measly hike in MGNREGS wages. According to analysts, MGNREGS wage rates in 17 states are below the corresponding state minimum wages. In spite of various judgements stating that the MGNREGS wage rate cannot be less than the minimum agricultural wage rate of the states, there has been little effort to increase the per day remuneration for unskilled work under the employment guarantee programme. Low wages in MGNREGS coupled with attraction of employment opportunities in urban areas, although mostly in the informal sector, have resulted in declining interest among workers in working for MGNREGS schemes. This will not only impact the asset creation for rural areas but is also opening doors for contractors and middlemen to take control locally furthering the decline in guaranteed rural employment.

Insufficient Funds In Spite of Demand

MGNREGS is facing a double whammy of sorts as the reduced rate hike in daily wages is coupled with a declining budgetary allocation for the rural programme. There is no component of standalone fund allocation to states and UTs under MGNREGS and funds released to the states and Union Territories (UT) is a continuous process. Funds are released by the centre to the states on the basis of the “agreed to” Labour Budget and the performance of the states and UTs during the financial year. Interestingly, under the scheme, wage payments must be made within 15 days of the date of closure of the muster roll. However, administrative delays and poor coordination between the centre and the states in procedural requirements often result in withholding payments to the beneficiaries.

The Union budget 2023-24 cut down the allocation of MGNREGS by nearly 18 per cent compared to last year. From Rs. 73,000 allocated to the rural programme in 2022-23, the funding came down to Rs. 60,000 crores. When taking into consideration the revised estimate for the FY 2022-23 at Rs. 89,400 crores the decline in budgetary allocation for the next fiscal year is even more pronounced at nearly 33 per cent. The budgetary allocation for the upcoming financial year is the lowest ever in the last four years and further adds to the declining support for the scheme that provided livelihood support to upwards of 11.37 crore households till December 2022. Taking into account the social inclusion aspect of the scheme, in the financial year 2021-22, 19.75 per cent of the employment generated by the scheme went to Scheduled Caste (SC) whereas the number stood at 17.47 per cent and 56.19 per cent for Scheduled Tribes (ST) and women respectively out of total person-days generated that year.

Although the budgetary allocation for the scheme declined in recent years, revised estimates indicate increased spending and evidence the need for an increase in budgetary allocation. Between FY 2014-15 and 2018-19, the funds for MGNREGS saw a steady rise from Rs. 34,000 crores to Rs. 55,000 crores. However, between FY 2019-20 and 2020-21, the budgetary allocation hardly witnessed any increase. From Rs. 60,000 crores in FY 2019-20, budgetary support increased by a mere Rs. 1,500 crores for the next fiscal. This is despite a revised estimate of Rs. 71,000 crores at the end of FY 2019-20. The next fiscal witnessed a similar story in declining fiscal support for MGNREGS. From a revised estimate of Rs 1,11,500 crore in the financial year 2020-21, the budgetary allocation declined by 34 per cent in the next fiscal of 2021-22 to Rs. 73,000 crores. The decline in the budgetary allocation for the scheme is even as the rural unemployment rate stood at 6.5 per cent on 31st January 2023.

Boosting Rural Demand, Reviving MGNREGS

The scheme's impact on reducing rural poverty and improving standards of living is well established through several studies. According to a recent study by Azim Premji University, by compensating for income loss caused by COVID-19-induced shutdowns by up to 80 per cent, the scheme provided a much-needed safety net for the rural population during this difficult period.

Wages below the minimum wage rate coupled with reduced budgetary allocations have a direct impact on the disposable income of rural households furthering the decline in demand for goods and services in rural areas. Beyond the basic provision of employment guarantee, MGNREGS is known to have impacted the lives of rural residents in several ways. Its ability to provide social protection, livelihood stability, and democratic empowerment sets the stage for inclusive growth in rural India. MGNREGS has been effective in generating long-lasting assets, enhancing water security, conserving soil, and increasing land productivity while ensuring that the employment potential through these measures goes to the local residents. For MGNREGS to continue its support to the rural economy, financial wisdom in budgetary allocations, wages in line with rising prices and cost of living and meaningful asset creation are a must.

Damini Mehta/New Delhi
Contributing reports by Yuvraaj Singh, Anurag Dubey and Swati Sinha, Researchers at Polstrat
From Polstrat, a non-partisan political consultancy which aims to shift the narrative of political discourse in the country from a problem-centric to a solutions-oriented approach.