MNREGA labour budget cut by 220 million person-days

2,170 million person-days planned for FY17, compared with 2,391 million person-days last year

At a time when nearly half of India's 676 districts are grappling with a second consecutive year of drought, the government expects a decline in the demand for work under the flagship Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) in 2016-17.

The estimated number of days when people in rural India will be offered work under MGNREGS has been slashed by 220 million person-days from the previous year.

While in 2015-16, the government had approved a labour budget of 2,391 million person-days, the same for 2016-17 is 2,170 million person-days. This would either lead to work for fewer hands or lesser work for all those who apply for the scheme.

In FY17, the government has allocated Rs 38,500 crore for the scheme. On Saturday, rural development ministry said Rs 41,371 crore was spent on the scheme in FY16. The statutory increase in minimum wage for FY17 would have inflated the government bill for the scheme further. This could now be partially offset by the reduced labour budget.

This reduction is scheduled to take place in the first and the last quarters of FY17, compared with the previous year. Interestingly, more person-days have been scheduled in the second and the third quarters of FY17 than FY16. But, in total, there is a reduction of 220 million person-days in FY17.

With drought in western and northern regions, the April-June quarter is likely to see severe rural distress as temperatures are also projected to be higher-than-usual, according to a forecast by India Meteorological Department. For Q1 FY17, 710 million person-days have been planned, compared with 890 million person-days during the same period last year. MGNREGS is considered a tool to provide relief during such times - a point the Supreme Court recently emphasised on while pulling up the Union government for not doing enough to counter drought-related distress.

Legally, MGNREGS is a demand driven scheme - the government has to provide work if people ask for it. But in practice, the fund allocation from the Centre and the labour budget impact demand on the ground. Field-level officials artificially suppress or encourage demand for work based on the expected fund flow from the government. Across the years, governments have provided less total work than planned for, including in 2014-15 when labour budget was slashed to unprecedented levels.

The labour budget - an estimate of how much work will be generated under the scheme in a financial year - is set after negotiations between the states and the Centre. However, the latter has the final say.

Officials in rural development ministry earlier told Business Standard that the government would release Rs 11,030 crore in the first tranche of funding to the states in April. They informed the Supreme Court on similar lines. On Saturday, the government announced a release of Rs 12,230 crore for April. But on MNREGA website, the sanction orders of amount released to 16 states added up to Rs 7,581 crore.

Rural development minister Birender Singh was quoted saying that the release would "take care of the pending wage liability of the states for the previous financial year (2015-16) and help the states run the Programme during the new financial year." Leave alone FY17, the liabilities of FY16 only add up to more than Rs 12,000 crore, with 25 states in the red.

While the government guidelines require that funds to states should be released in two tranches, practically that has not happened for years. Last year, the April tranche was just above Rs 12,000 crore. And in FY15, it was Rs 7,300 crore.

The surge in person-days in the last two quarters of FY16 arose out of the Centre releasing funds and sending an unambiguous signal supporting MGNREGS in the second half of the drought year. Though the additional benefit of 50 days' work to the drought-hit areas was not provided uniformly, the demand for work soared close to the labour budget, leading to record liability of Rs 12,000 crore.