At current pace, MGNREGA will need minimum Rs 1 trillion budget next fiscal

Work demand has been unusually high the past two years and front-loading expenditure helped in generating adequate demand while installing confidence in the system

The continued strong demand for MGNREGA despite a resumption of normal economic activity, as seen from the latest data, has triggered calls for adequately funding the scheme in the upcoming Budget to kick-start rural recovery.

The common argument against the front-loading MGNREGA Budget is that it is a demand-driven scheme. As and when the demand arises, the Centre funds it so that wages are not kept pending for long while material expenses are cleared in time. However, the civil society claims that front-loading expenditure helped in generating adequate demand while instilling confidence in the system. It also helps in avoiding sudden fund crunch.

Given the current trend in demand and the number of households that have been provided work so far in FY22, a broad back-of-the-envelope calculation shows that a Budget that is less than Rs 95,000-Rs 100,000 crore will get exhausted in the first few months of FY23 itself.

This will again lead to the usual cycle of states complaining of mounting pending wages leading to charges of artificial suppression of demand to align with the fund crunch. The number has been arrived at by multiplying the total number of households that have worked under the scheme so far (which is 65.9 million) with the average cost per day per person (around Rs 292). The result is then multiplied again with the average days of employment per household in a year (around 50 days). The final figure gives the estimated Budget required to smoothly run MGNREGA in a year. And the figure comes to about Rs 94,000 crore.

However, given that average cost per person each day will get revised as per the new wage rates next year, the above estimate is conservative in nature. “I think with the wage increment and all, the government should look to at least allocate Rs 150,000 crore (Rs 1.5 trillion) to MGNREGA in next year’s Budget to ensure there is no delay and the operation is continuous,” Debmalya Nandi of MGNREGA Sangharsh Morcha told Business Standard.

He said even in this fiscal year, if the Centre wishes to provide 70 days of employment on average, the total expenditure for the scheme should be in the range of Rs 1.3 trillion.

The Budget estimate for MGNREGA in FY22 was Rs 73,000 crore. Of this, around Rs 17,000 crore was spent on clearing pending dues from the previous year. As demand for MGNREGA works remained robust in FY22 as well, around 77 per cent of the allocated Budget got exhausted within the first five months.

As wages started getting delayed and states complained of acute fund shortage, the Centre pumped in another Rs 22,000 crore to meet the demand.

After the last top-up, the total Budget for the scheme in FY22 is projected to be around Rs 95,000 crore. This is near the sum that some civil society activists are saying should be front-loaded to ensure there are minimal wage delays and pending dues problems.

Demand from households for MGNREGA work has been robust for the second year running. Though less than FY21, on average, more than 20 million households have been demanding work under the scheme, between April and December of FY22. This, experts say, shows rural recovery has not yet come back to pre-Covid levels.

Perturbed by the lack of funds for the scheme, a group of economists wrote to the Prime Minister in November 2021 calling for adequate fund allocation for MGNREGA. “This (allocation of extra funds) will, through its effects on mass demand, also contribute to the recovery of the overall economy and micro and small enterprises,” they had said in the letter.

The economists, such as Jean Dreze, Prabhat Pattnaik, Mahendra Dev, Pronab Sen, Himanshu, among others, said in the letter that it is unfortunate that the fund allocation for the programme was cut by nearly 30 per cent despite evidence of the critical security provided by MGNREGA during the first year of the pandemic.

“Lack of funds results in suppression of demand for work and delayed payment of wages to workers. These are violations of the Act; they also constrain economic recovery,” the letter had said.