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Wednesday, April 14, 2021

Will the MGNREGS help in the revival of the Indian economy?

After the COVID-19 pandemic hit the entire world went into a state of shock, something we had never experienced or even thought of before. Even though India dealt with the crisis firmly and supposedly had the most stringent lockdown, there were instances where the Modi government was not too successful. One of them being the migrant labourers’ exodus. But the government tried to revive from this crisis and one of the first steps was to announce an additional 40,000 crore for the Mahatma Gandhi Rural Employment Guarantee Scheme (MGNREGS). Was that enough? With half of the funds spent in just four months, the MGNREGS is probably looking at a very tough financial year with eight more months to go.

Will the MGNREGS be able to help in the revival of the Indian economy or fall short?

The MGNREGS had once helped India during the 2007-08 global financial crisis that was expected to affect the country the next year. Even though the economy had dipped, the MGNREGS programme probably saved us from a worse fate. Nonetheless, macroeconomists are not in favour of the schemes like the MGNREGS because it helps only in the short term. Modi had once criticised the scheme as the colossal failure of the Congress-led UPA government but did not scrap the scheme altogether. The Modi government had also not paid much attention to the prospects of the scheme when the Indian economy was going through a rough patch even before the pandemic hit even after economists like Nobel Laurette Dr Abhijit Banerjee had suggested that the only way to get past the economic slump was to increase demand by putting cash in the hands of the people. An employment guarantee scheme like the MGNREGS would not only do that but also create public goods that have a wider multiplier effect on society at large.

What is the MGNREGS?

Mahatma Gandhi Employment Guarantee Act 2005 (or, NREGA No 42, later renamed as the “Mahatma Gandhi National Rural Employment Guarantee Act”, MGNREGA), is labour law and social security device whose major aims is to guarantee the ‘right to work’. The act was finally passed in September 2005 under Dr Manmohan Singh’s UPA government. It was formulated to improve the livelihood security of India’s rural citizen by providing them with at least 100 days of wage employment in a single financial year. Every household had the opportunity to participate and their adult members could volunteer to do unskilled manual work which would be used to make roads, hospitals, schools etc in rural areas.

The act was first proposed in 1991 by the then Prime Minister PV Narasimha Rao. It was later accepted in the Parliament and implementation started in 625 districts of India. Based on the pilot project, the NREGS was scaled up so that it now covered all the districts of India from April 1, 2008. This very statute was hailed by the government as “the largest and most ambitious social security and public works programme in the world”. Not just that, the World Bank in its World Development Report 2014, called it a “stellar example of rural development”.

The MGNREGA was started with the thought of “enhancing livelihood security in rural areas by providing at least 100 days of guaranteed wage employment in a financial year, to every household whose adult members volunteer to do unskilled manual work”. its other aim was to create durable public assets (such as roads, canals, ponds and wells). It was decided that employment was to be provided within 5 km of an applicant’s residence, and minimum wages are to be paid. If the government could not provide work within 15 days of applying, the applicants were entitled to an unemployment allowance as well. Thus, employment under MGNREGA became a legal entitlement. MGNREGA was to be implemented mainly by gram panchayats (GPs) across India. The involvement of contractors was completely banned.

What happened after lockdown?

The government had allotted Rs 61000 crores for this year’s MGNREGS and after there was an exodus of labourers they put some more funds in — Rs 40000 crores — so that it would help pay for more work. Now, the total stood at Rs 1 lakh crore. “Since many have gone back to their villages if they enrol, they can get jobs under the scheme,” Nirmala Sitharaman said while announcing the extra allocation. “This will help generate 300 more person-days,” Anurag Thakur, MoS Finance and Corporate Affairs added.

But the number of people who went back to their villages was humungous and the amount of work demanded was also huge. As high as 91 crore persons per day in the past two months. As many as three lakh households have finished their 100 days of employment. A survey conducted by the Azim Premji Foundation (AFP) found that a large number of GPs across the country have already run out of the funds that were allocated to them as part of the scheme. Even though the amount of work has reduced due to the onset of monsoons, the demand for work has not gone down even a bit.

What can be done next?

The future seems a little bleak for the scheme. But this can be averted. The AFP finds a way out too. They suggested that the Modi government should allocate additional funds — as much as Rs 1 lakh crores — to get them through the pandemic and the lockdown that has had detrimental effects on the employment scenario. Not just that, the report also mentions that the government has to increase the number of man-days of work as well to provide employment and proper sustenance to the people of the country.

Will the MGNREGS help in the revival of the Indian economy?
Letter written by the foundation to the GOI. Source: https://cse.azimpremjiuniversity.edu.in/wp-content/uploads/2020/06/Compilation-of-findings-APU-COVID-19-Livelihoods-Survey_Final.pdf

Now we have to see what the Modi government will do to better the situation all the across the country. What we cannot yet figure out is whether the government has a plan or not to beat the odds and pull the economy out of the downward spiral it is in right now. What is important is a foolproof plan. Let’s hope the Centre comes up with one soon enough to revive the economy.

Do not have time to read? No problem. Platocast’s State Of Economy is a weekly Indian Economy podcast where we aim to provide context on the economic news of the week. Listen here. 

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