NREGA budget cut couldn’t have come at a worse time

Ashraf Engineer

February 11, 2023


Hello and welcome to All Indians Matter. I am Ashraf Engineer.

This government has never been too keen about the Mahatma Gandhi National Rural Employment Guarantee Act, better known as NREGA, despite the crucial economic and social safety net it provides. After the COVID-19 lockdowns, it was NREGA that kept many rural kitchen fires going. The latest Union Budget slashed the allocation of the flagship rural jobs scheme to only Rs 60,000 crore –18% lower than the Rs 73,000 crore allocated for 2022-23 and 33% lower than the Rs 89,400 crore estimated to have been actually spent that year. Activist and worker groups are incensed, calling the lower allocation an “assault” on people’s right to work. At a time when the Periodic Labour Force Survey (2020-21) shows rural unemployment at 6.48% and World Bank data shows that four out of five women are not in the labour force, the organisations released a statement, saying: “These statistics clearly indicate the distress being faced by the unemployed, particularly in the informal sector. Low levels of employment and low wages also lead to low consumption, which adversely impacts economic growth by reducing bottom-up aggregate demand.” What impact will the slashing of the NREGA allocation have on rural families and the overall economy, especially when a slowdown is in the offing?


The NREGA Sangharsh Morcha and Peoples’ Action for Employment Guarantee said that the allocation was a “travesty”. They pointed out that it is a mere 0.198% of the GDP, the lowest share ever. In response, they announced a 100-day protest in Delhi from February 6.

The statement added that with the estimated pending liabilities, only Rs 50,600 crore would remain, which would allow for only 16.64 days of work per active household instead of the promised 100 days. If the government were to consider all 16 crore registered households, the days would further reduce to just 10.

Most people, especially in urban areas, simply don’t understand how critical NREGA is to rural India. The protesting organisations pointed out that it had a palpable impact despite the programme functioning at only half its capacity – that is, only 40 to 50 days of work provided per active family over the past five years. A recent study showed that “20% to 60% of households in Bihar, Karnataka, Madhya Pradesh and Maharashtra felt that NREGA contributed to overall development of the village” and not having to migrate was frequently mentioned as a positive aspect of the scheme.

The organisations added: “The current regime continues to shrink workers’ rights in the form of delayed wage payments, excessive digitisation and centralisation of the programme, as well as changes introduced with no worker consultation.”

The activists said the allocation should have been Rs 2.72 lakh crore.

Facing the heat, the government said the scheme is demand-driven and more funds will be provided if needed. However, a lower allocation means that when demand happens the money isn’t available and fresh allocations take time. By the time they are made available, the workers have given up and the purpose of the scheme is defeated.

The reduced allocation comes at a time when rural India is facing high unemployment rates coupled with high inflation. This has shrunk spending and consumption by rural households.

The recent Economic Survey showed that 6.49 crore households demanded work under NREGA in 2022-23. Of these, 6.48 crore were offered employment and 5.7 crore actually availed it. The survey credited NREGA with positively impacting incomes, agricultural productivity and production-related expenditure, along with “income diversification and infusing resilience into rural livelihoods”.

So, how important is NREGA to rural India?

The Act was passed in 2005 to provide livelihood security to rural homes. It guarantees 100 days of unskilled work every year for every rural household that demands it. It covers every district except for those with a 100% urban population.

When I last checked, there were 15.51 crore active workers enrolled for NREGA working in areas such as road building, construction, digging ponds, etc.

If work is not provided within 15 days of the demand, the worker is given a daily allowance. Wages have to be paid within 15 days and the Centre must compensate workers in case of delays.

During the COVID-19 pandemic, NREGA was all that stood between survival and starvation for millions. During the first lockdown in 2020, the scheme got its highest-ever allocation of Rs 1.11 lakh crore, providing a lifeline to 11 crore workers. Remember, the scheme has a multiplier effect – so, each worker lands up supporting his or her entire family.

Studies have shown that the scheme compensated between 20% to 80% of the income loss during the lockdown. The demand for work spiked to record highs with 8.55 crore households participating in 2020-21 and 8.05 crore in 2021-22. In 2019-20, the pre-pandemic year, 6.16 crore households demanded work.

Finance Minister Nirmala Sitharaman said in Parliament that NREGA demand has been declining, but, as I pointed out earlier, the Economic Survey said that as of January 24 this year, 6.49 crore households had already demanded work with two months left for financial year 2022-23 to end. This figure, while implying a drop from the pandemic years, is still larger than pre-pandemic levels. So, rural households are not out of the woods yet. The Ministry of Rural Development informed Parliament last August that demand doubled in the last seven years – 3.07 crore rural homes asked for work in May 2022 compared to 1.64 crore in May 2015.

Last year, the Parliamentary Standing Committee on Rural Development wondered why the government keeps reducing the allocation and then supplying more funds because the demand is so high. Activists say 80% to 90% of the NREGA allocation gets exhausted within the first six months of the financial year, which leads to a slowdown in work and delays in wage payments.

Wage payment delays, in particular, are a major hurdle. According to government data, it owed Rs 4,700 crore in NREGA wages to 18 states as of December 14, 2022. In 2016, the Supreme Court had directed the government to ensure that wages were paid on time, equating the workers’ interminable wait to “forced labour”. Additionally, the government also owed Rs 5,450 crore worth of material costs for NREGA projects to 19 states. These delays break the supply chain because vendors are reluctant to supply materials for work.

Another concern is the minimum wage under NREGA fixed by the Central Government on the basis of the Consumer Price Index – Agricultural Labourers. The type of work done by agricultural labourers and NREGA workers is different, so the minimum wage should be pegged on the Consumer Price Index – Rural, which provides for higher expenditure on education and medical care.

Fake job cards, corruption, delays in uploading muster rolls and irregular payment of unemployment allowance are the other hurdles.

NREGA, a lifesaver for millions, seems to need rescuing itself. The scheme is an economic and social gamechanger and it needs the full support of this government. It’s a pity that it’s simply not interested.

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