Suffering Rises Due to Lowest-Ever MGNREGS Funding

Government’s Arbitrary and Unjustified Budget Cuts

Newsreel Asia Insight #10
Oct. 11, 2023

Funding cuts to the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) is straining rural India, as was expected. About 93% of this year’s budget is already spent in the first half, according to a report by the Economic Times.

The Times reported that demand for work under MGNREGS has risen compared to last year. Meanwhile, this year’s allocation represents less than 0.2% of the GDP, setting a record low for the scheme. The program’s primary aim is to bolster private employment in rural India with public opportunities, thereby enhancing agricultural productivity and alleviating poverty – a huge need in India.

The rural development ministry is said to be planning to request “substantial” additional funds for the remainder of the fiscal year. This need has emerged even though the MGNREGS work has been suspended in West Bengal due to political tensions between the ruling parties in the state and Central governments. West Bengal has been a significant beneficiary of the scheme.

Deccan Herald reported that this year’s budget allocation for the MGNREGS was 32% less than the revised estimate of the current financial year. The allocation is just over half of the budget estimate of 1.1 trillion rupees for 2020-21.

The Economic Survey 2022-23 stated that assets created under the MGNREGS positively impacted agricultural productivity and household income. The scheme also reduced migration and indebtedness, particularly from non-institutional sources.

The MGNREGS was introduced in 2005 under the United Progressive Alliance government, led by the Congress party.

The scheme has also been credited with strengthening linkages between agriculture and the rural non-farm sector, according to a study that used special calculations, called the Social Accounting Matrix (SAM)-based multipliers. The study found that the program positively affects families in rural areas.

The scheme was framed against the backdrop of several centrally sponsored schemes aimed at poverty alleviation. The focus has been predominantly on rural areas where agriculture is the mainstay. According to a 2005 study by Parikh and Radhakrishna, the success of poverty reduction efforts hinges on agricultural growth, an objective that this scheme effectively addresses, as noted by Economic & Political Weekly.

The introduction of the MGNREGS triggered new interest in analysing intersectoral linkages in the rural economy. The demand for non-farm services like transport, education and carpentry is expected to rise due to increased income, both direct and indirect, noted a study by Saikia in 2009, according to EPW.

The scheme was initially seen as a short-term employment program to generate income and help consumption smoothing for poor households during lean agricultural seasons. However, its long-term benefits have been increasingly recognised, making the current funding cuts all the more concerning.

After the Union Budget 2023-2024 was presented, an op-ed in the Herald noted that annually, the MGNREGS accumulates significant unpaid debts, amounting to billions of rupees. This clearly indicates that the initial and revised budget allocations are insufficient, leaving millions of at-risk workers anxiously awaiting their pay, it noted, pointing out that the Supreme Court has labelled this dire situation as “forced labour,” declaring it a breach of Article 23 of the Indian Constitution.

The op-ed went on to say that from 2008 to 2011, the yearly budget for the program was about 0.4% of the GDP, with promises that additional funds would be supplied as required. However, it added, experts and advocates who have closely examined the program’s execution believe that nearly twice that amount, or around 1% of the GDP, is necessary to elevate the scheme from a vital safety net to a transformative force in rural India.