Choking the Lifeline of Rural Economy: MGNREGS during COVID-19 Lockdown

What Choked the Lifeline of Rural Economy during the Crisis?

The MGNREGS could work as a lifeline for the rural economy at the time of a crisis such as the one created by COVID-19 lockdown. Why has this not happened?

First, the lockdown was announced without any preparation for the continuation of the MGNREGS. When the lockdown was first announced, COVID-19 infections were still mostly localised in large cities and, barring a few exceptions, infections had not yet spread to rural India. At that stage, stopping all the MGNREGS work with the announcement of the lockdown was unnecessary and a result of lack of planning.

In fact, the spread of COVID infections into the hinterland, to the extent that it has taken place, was accelerated because of return migration triggered by sudden announcement of lockdown. Lack of social security measures for the urban poor in the cities forced these migrants to flee towards their native villages. In fact, it could well be argued that continuation of economic activities in rural India, and a lockdown in cities with a significant extension of social security for the urban households, could have avoided the distress to a significant degree and may have been more effective in containing the spread of COVID infections.

It was only on April 15th that the Ministry of Home Affairs came out with a notification which exempted the MGNREGS from lockdown restrictions; the exemptions came into effect only from April 20th, almost a month after March 22, when the first lockdown was imposed in the form of Janta Curfew.[1][3]  This delay in allowing MGNREGS works to continue was particularly inconsistent with the decision, announced on March 26th as part of the PM Garib Kalyan Yojana package, to increase the MGNREGS wages by Rs. 20 per day with effect from April 1st.

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Secondly, irregular and grossly inadequate release of funds by the Central government and inability of State governments to contribute their share because of their poor financial situation has meant that, even after the MGNREGS work was exempted from the lockdown, it was resumed only partially in most States. While the exemption was in place for one third of the month, the employment creation was only about 12 per cent of what was originally planned for. Only Chhattisgarh (46 per cent) and Andhra Pradesh (33 per cent) managed to create at least one third of the projected employment in the MGNREGS in the last ten days of April. Karnataka (32 per cent), Bihar (28 per cent), West Bengal (23 per cent) and Odisha (22 per cent) also managed to create some employment. Very little employment could be created in the remaining States (Table 1).

Table 1: Projected and generated person-days in top twenty states (in thousands), April 2020

Table 2 shows the opening balance of funds available to all States (including State contribution) on April 1st, when the financial year started. In most of the states, the opening balance for April was inadequate to carry out work under the scheme even for a month. The opening balance was negative in case of Kerala. Table 2 also shows that all the states that managed to create some employment in the last ten days of April ended up spending more than the opening balance they had for the MGNREGS at the starting of the month. There were Rs. 366 crore of pending dues at the end of the last financial year of which Rs. 128 crore was for payment of wages to workers who had worked in the scheme last year. On March 27, the Centre released Rs. 4431 crore towards pending payments and, after much dilly-dallying, another Rs. 12,230 crore to the states on April 9.[1][4]

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In addition, the financial constraints faced by the states due to a combination of the extraordinary loss of revenue on account of large-scale closure of economic activities, non-payment of GST dues by the Centre, and the exceptional demands on their resources created by the pandemic, have meant that many States were hard put to contribute their own resources to keep the works continuing.

Table 2: MNREGS Opening Balance and Expenditure in Select States (Rs Lakh)

While the Lockdown and Lack of Funds Impeded Functioning of the MGNREGS, Demand for Work Has Been Unusually High 

It is difficult to estimate the demand for employment in the MGNREGS. Although the scheme was originally designed to be demand-driven (as the Act guarantees provision of employment up to 100 days within 15 days of demand), in reality, the scheme functions as a supply-driven programme like any other public works programme. The bureaucratic restrictions on the process have been designed in such a way that the applications for work are only created when the employment is ready to be provided. This has also meant that the government almost never pays unemployment allowance that is mandated by the Act for situations when the government is unable to provide employment within 15 days of demand. For example, in 2019-20, only Rs. 12000 was paid as unemployment allowance in the country as a whole.

Despite the Act providing a guarantee of 100 days of employment per household, the MGNREGS functions as a supply-driven programme rather than a demand-driven programme. Although employment creation is counter-cyclical to labour demand in agriculture, this is so not because the pattern of demand for work in the MGNREGS is such but because the supply of work in MGNREGS is counter-cyclical to labour demand in agriculture. This is evident from the fact that, in many states, agricultural wages are lower than the wages in the MGNREGS.

As has been shown in Figure 1, the first quarter of the financial year is the peak season for employment in the MGNREGS. This year, with widespread loss of employment during lockdown and return of migrant workers to villages means that even greater than usual level of rural workforce is available to work in the MGNREGS. While one does not have a way of estimating the level of demand for employment in the MGNREGS, an important sign of considerable increase in the demand for employment is the fact that, despite the lock down, there has been a net increase of 7.1 lakhs in number of applications for job cards after March 31st, despite the lockdown (Table 3). The largest increase in applications is seen in Uttar Pradesh, Bihar and Chhattisgarh. All of these states have also seen a large influx of return migrants.

Table 3: Number of applications for job cards as of March 31, 2020 and May 12, 2020 (lakhs)

Reviving the MGNREGS Can be Crucial for the Recovery of the Rural Economy and Livelihoods

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It may be noted that, together with States’ own funds, the amount released for the MGNREGS so far (in financial year 2020-21) is only Rs. 22259 crore. After adjusting for the total expenditure (Rs. 7158 crore) made until May 5, the remaining amount is only Rs. 15101 crore. Unless the Centre releases substantial part of the allocation for this year immediately, the States will not be able to create much employment through the MGNREGS during this lockdown.

In Table 3, I have estimated the funds required for achieving the projected level of employment generation in the first quarter. These estimates are based on per person-day expenditure last year to which Rs. 20 per person-day was added on account of increase in wages that has already been announced by the government. It must be noted that this estimate of funds required is likely to be an under-estimate because it neither accounts for increased demand for employment due to the lockdown nor does it take into account the inflation in other costs.

The estimates also do not take into account the additional cost of implementing safety measures at the MGNREGS sites in view of the COVID-19 pandemic. Despite this, these estimates show that there is likely to be a shortfall of about Rs. 7418 crore between funds that are available to the States and funds that are required to run the programme just until June. It is pertinent to mention once again that the requirement of the MGNREGS employment is highest in this quarter, when little employment is available in agriculture or outside, and failure to run the scheme at full capacity during these months would immensely exacerbate rural distress.

Table 4: Availability and estimated requirement of funds in the first quarter of 2020-21 (Rs Crore)

To sum, lack of planning and preparation before implementation of the lockdown resulted in closure of all the MGNREGS work for about one month during the COVID-19 lockdown period. Although the government exempted the MGNREGS from lockdown restrictions on April 20th, the revival of work under the scheme has been slow. Problems in availability of funds and other administrative hurdles are the main reasons for this.

As per the constitutional provisions of the MGNREGA, the government is obliged to provide unemployment allowance to workers if employment cannot be provided to them. This is particularly relevant in view of the fact that the government has asked all enterprises to pay their workers even if the enterprises are closed because of the lockdowns. Instead of taking refuge in bureaucratic rigmarole, the government should honour its constitutional obligations and provide unemployment allowance to all the MGNREGS job card holders who have not been provided unemployment since the lockdown was imposed. Further, it should release more funds to State governments so that they can respond to the increased need for employment creation in rural areas and provide employment to the MGNREGS workers as per the provisions of the scheme. This is important not just for alleviating rural distress. A significant enhancement of employment creation through the MGNREGS can be critical for the revival of the economy for which collapse of demand is currently the biggest hurdle. Every penny spent on rural employment comes back to the government many times over because of its strong multiplier effects. The importance of this lesson cannot be overstated in a time of crisis such as the present.

This paper shows that the lack of planning and preparation before implementation of the lockdown resulted in closure of all MGNREGS work for about one month during the COVID-19 lockdown period. Although the government exempted the MGNREGS from lockdown restrictions on April 20th, the revival of work under the scheme has been slow. Problems in availability of funds and other administrative hurdles are the main reasons for this. The paper argues that a significant enhancement of employment creation through the MGNREGS can be critical for the revival of the economy for which collapse of demand is currently the biggest hurdle.

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