MGNREGA Work Availability Slows Sharply As Resource Crunch Hits

The central government may need to raise the money allocated to its flagship rural jobs guarantee scheme for the second time this year as resources are running out.

The budget for the Mahatma Gandhi National Rural Employment Guarantee scheme was raised to Rs 1 lakh crore from the initially budgeted Rs 61,500 crore after the Covid-19 pandemic hit. This helped increase the amount of work available as migrant workers moved back to rural areas.

However, as demand for work has remained high, funds are running out. The MGNREGA portal lists total availability of funds at Rs 88,711 crore for the financial year, which is typically the amount left over after clearing the previous year’s arrears. Total expenditure so far this year is already at Rs 82,678 crore or 93.2% of the funds available, the data shows.

Supply of work has already taken a hit.

• In December, supply of work to households rose by just 13.93% year-on-year, compared to a rise of 47.27% in November 2020.
• Demand for work by households rose 55.4% in December 2020 compared to a rise of 49.57% in the previous month.

While the scheme was designed to be demand driven, it works to the contrary, said Rajendran Narayanan, assistant professor at Azim Premji University. The upcoming season of January-June is peak time for MGNREGA and while supply constraints have been evident since 2015, they do appear particularly bad in context of the pandemic, Narayanan said.

Earlier research by Narayanan also shows that payments start to get delayed from December each year. That’s the phenomenon that appears to be playing out this year as well, he said.

The deficit is evident in the net balance in the MGNREGA budget across states. The net balance reflects the difference between the total availability of funds to each state and the total expenditure including the payments due.

There is certainly a need to increase allocation for MGNREGA, said Radhicka Kapoor, fellow at Indian Council for Research on International Economic Relations. It’s the only safety net people have at this point and the government can not afford to scale back on it, she said.

Employment Continues To Lag

The elevated demand for work under MGNREGA adds to other indicators which suggest that employment conditions remain weak.

India’s manufacturing PMI, released on Monday, showed that employment contracted for the ninth straight month. The unemployment rate, as measured by the Centre For Monitoring Indian Economy, rose to 9.06% in December from 6.5% in November. Unemployment in urban areas rose to 8.84% in December 2020 compared to 7.07% in November, while rural unemployment moved up to 9.15% compared to 6.26%.

The uptick isn’t entirely unexpected, said Rosa Abraham, senior research fellow at the Centre for Sustainable Employment, Azim Premji University. As the economy continues to recover, those that had withdrawn from the labour force at the pandemic’s peak have now started to look for jobs again. The surge may be led by the educated workforce, who are now actively looking for jobs, said Abraham. Women who had withdrawn from the labour force when they lost their jobs may also be returning, she said.

In a note on the Centre for Monitoring the Indian Economy’s website, managing director Mahesh Vyas wrote that employment fell by a significant 3.5 million in November and was 10 million short of what it was in the March 2020 quarter. The labour force participation rate has improved in the first three weeks of December to 41.4% compared to 40% in November.

However, the enthusiasm of this labour in entering the labour market was met with a very high unemployment rate, Vyas wrote.