Is MGNREGA work demand real sign of distress or problem lies elsewhere?

Work demand for Mahatma Gandhi National Rural Employment Guarantee Act/ Scheme (MGNREGA/S) has dropped after increasing during the coronavirus. In the financial year 2018-19 (FY19), around 77.7 million people worked under the scheme. Employment increased to 111.9 million people in FY21 and 106.1 million in FY22, the years when India was in the grip of the coronavirus.

In FY23, around 87.5 million people worked under the scheme, according to the MGNREGA website. Till December 12 in FY24, approximately 72.6 million people had worked under the scheme for which the Budget has been repeatedly augmented. AMIT BASOLE, professor of economics and head of Centre for Sustainable Employment at Azim Premji University in Bengaluru, and C S C SEKHAR, professor of economics, the Institute of Economic Growth at University of Delhi, spoke to Sanjeeb Mukherjee about how the employment scheme is doing. Edited excerpts from an e-mail interview.

Monthly MGNREGS work demand has remained high since the pandemic compared to levels before. There is moderation, but it is still higher than in the years before the pandemic. What, according to you, is the reason for this?

AMIT BASOLE: I think the main reason is that the economy has not entirely recovered from the shock of Covid-19. It is important to keep in mind that the formal economy did relatively well during the pandemic, but the same was not the case for the informal economy. Though agricultural production was not as badly affected as manufacturing or services during the pandemic, workers who lost jobs in other sectors ended up in agriculture or self-employment as fallback options. The fallback option includes MGNREGA. Hence, the share of agriculture and self-employment in the total workforce increased during the pandemic and for women, it is still higher than it was before Covid.

C S C SEKHAR: The demand for work under the MGNREGA has seen a spike since November 2021 — after falling to its lowest since the pandemic in September-October 2021. It will be high during 2021-22 too. However, since June 2023, there has been a clear downward trend.

The number of households demanding work has fallen from 3.37 crore in June 2023 to 1.77 crore in November 2023, a 48 per cent decline. In terms of persons, the number has come down from 4.42 crore to 2.11 crore (a 53 per cent decline). However, these numbers are still high but I am not sure we can attribute this to rural distress alone.

Do you think this is reflective of a continuing crisis in the rural job market post Covid as many are commenting?

BASOLE: Yes, I think this is the case. It is not that recovery is not happening, but it is much slower than we would like it to be. It should also be kept in mind that many poor households had to borrow money informally to survive during the pandemic.

Repaying all this debt means that incomes need to be supplemented (here again, MGNREGA comes in), and consumption may need to be cut back, further delaying economic recovery. In this regard, it is worth looking at what FMCG [fast-moving consumer goods] companies are saying about rural demand.

SEKHAR: I think we need to look at the available data carefully before drawing such conclusions. There are a few reasons why I do not think this is only due to rural distress. First is the trend in rural wages.

If there is an increase in demand only due to distress, which, in turn, leads to excess supply in rural labour (agricultural) markets, the first effect should be on rural wages. But, the data on rural wages shows that there was no significant fall in real rural wages (deflated by CPI-RL) after 2019.

In fact, it even rose slightly between 2019Q4 and 2022Q4. The second reason is that if the increase in demand is due to distress, then the increase should be there for both males and females. But, if you look at the PLFS data, between 2019-20 and 2022-23, employment of rural males in agriculture actually fell by about 13.3 million while their employment in non-agricultural activities increased by about 18 million.

Only female employment in agriculture increased by 22 million! What this points to is that the males moved to non-agricultural activities and females are taking up the space vacated by them in agriculture. Of course, the increase in the female workforce is much higher than the number of males leaving agriculture, but that is a positive indicator of the larger absorption of labour in agriculture.

There is some recent research which also shows that some of the policy initiatives, such as providing piped drinking water or subsidised gas connections, which reduce the time spent by women on unpaid domestic work like fetching water and firewood, may have enabled some of the women to seek paid work outside home, including MGNREGA. Of course, these factors need further careful research.

The Budget for the scheme has consistently been around Rs 100,000 per annum, which wasn’t the case before Covid. Do you think that this is the new normal and the Centre should brace for such high demand?

BASOLE: One hopes that the demand will come down over time as the economy picks up and job creation speeds up. The government has been trying to do its part via increased capex (capital expenditure) but private investment has not responded to the same extent. It is not clear why.

SEKHAR: The increase in demand for MNREGA employment is here to stay for some time, irrespective of whether it is linked to distress or not. Therefore, budgetary provisions need to be enhanced. Yes, this is the new normal.

Central government officials have said that the continued high demand is also on account of some misappropriation and faulty counting of workers. Do you think this is a correct assessment of the situation on ground?

BASOLE: I am not sure if this can explain the high demand unless there is reason to believe that corruption in the programme has increased. I have not seen much systematic evidence for this (corruption has always been there).

SEKHAR: I don’t have much knowledge about this. But if true, the social audits, PFMS and all the monitoring and surveillance mechanisms need to be strengthened.

What is the situation when it comes to the rural job market in particular and the broader rural economy?

BASOLE: As mentioned above, the relatively poorer households in both rural and urban areas were worst hit by the pandemic. There is enough evidence for this. Their recovery has also been slower. For example, PLFS [Periodic Labour Force Survey] data shows that earnings from self-employment have mainly been stagnant since 2019 (or, in the case of women, they have declined in real terms).

So there is distress in the economy. But it is also true that a substantial part of the economy, made up of well-to-do sections in both rural and urban areas, is doing well and has recovered completely.

In fact, at the very top, savings have increased substantially. So the picture is a mixed one. Continued efforts are needed on many fronts. MGNREGA allocation should remain high to meet demand. The PDS provisions have already been extended for another five years.

But also, there needs to be a renewed and concerted effort to create productive employment opportunities. Ultimately, only well-paying jobs can be the solution.

SEKHAR: I have partly answered this question above. As I have said, the picture is not that bleak and actually, there are some positive indicators. However, the long-term solution is Amartya Sen’s capability approach.

That is the only way to improve the literacy, health and skill sets of rural labour to enable them to move to more productive and fulfilling activities. Of course, that will take a long time, and in the interim, we need to continue the safety nets like MGNREGA.