India’s Economy Recovering? MGNREGA Data Forces A Rethink.

High-frequency indicators continue to signal a rebound in India's economic activity to near pre-pandemic levels. E-way bills and GST collections to electricity consumption suggest that activity levels have steadily improved.

However, one indicator continues to run counter to that narrative—the increased demand for work under the government’s flagship rural jobs guarantee scheme. Demand for work remains much higher than last year and has defied the seasonal drop typically seen during these months.

According to data available on the official MGNREGA website, demand for work by households rose 74.5% year-on-year in October compared with 71.1% in September. Demand for work by persons rose 77.5% in October compared with a year ago, from 76.5% in September.

The increase in demand for work in October was the highest since January 2016, official data shows.

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The persistently high demand for work comes despite reports of factories restarting and migrant workers returning to cities.

While some migrants are returning to urban areas, many have also stayed back in search of work, continuing to drive the spike in demand for work, said Rajendran Narayan, assistant professor at the Azim Premji University. After the onset of the pandemic, there was also an increase in the number of job cards issued and the number of active MGNREGA workers. That would also explain why demand remains high, he said.

In a normal year, from July itself, demand for work under the rural jobs guarantee programme begins to wane and one does not see an uptick in work demand in September, October, and November, Narayan said. This year, along with the continuing spike in the demand for work, data also shows that more households have completed over 70 days of work already compared to the previous year, he added.

The biggest jump in demand has come from the states of Haryana, Jharkhand and Assam, along with West Bengal, Uttarakhand and Uttar Pradesh.

Ankita Pathak, an economist at Edelweiss Financial Services Ltd., said some part of the increase is attributable to a lower base effect from October 2019. When seen on a monthly basis. Demand for work by households fell 7.6% and demand for work by persons fell 9%.

Sequentially, work demanded has been flattish for the last three months after a high in June, though the supply thus far for October looks particularly sluggish, Pathak said.

While 2.25 crore households demanded work under MGNREGA, supply was restricted to 1.27 crore households, creating the widest wedge between demand and supply through the year.

This demand-supply wedge is and will be a more critical indicator to watch, Pathak said, adding that the MGNREGA demand is expected to remain sticky in the coming months.

Need For A Budget Hike?

The annual budget for MGNREGA was raised to Rs 1 lakh crore after the pandemic compared to an initial allocation of Rs 61,500 crore.

But this too may fall short. So far, the total expenditure on the scheme has amounted to Rs 66,364.22 crore. Total expenditure, including the payments due, amounts to Rs 74,559.55 crore.

“There has been a lot of front-loading this year, and the allocation will need to be increased for the rest of the year to fast track recovery,” said Pathak.

Unemployment was deep even pre-covid, Narayan said. Now, with the pandemic, the government may exhaust its existing outlay as soon as November. It may have to consider doubling that amount for the remainder of the year, Narayan said.