India’s rural jobs scheme is especially relevant today

In terms of reach among rural households, it is the second-largest mass-benefit scheme after the National Food Security Act. Both these legislations enacted under the United Progressive Alliance (UPA) government created a rights-based framework for social protection.

The last two decades have seen multiple changes in the way MGNREGA has been implemented, but it remains our most important social safety net in rural India.

It was not the first attempt by India’s government to provide employment to millions of poor people. But it differed in three ways.

First, since it was enacted by Parliament as a law, this public employment programme had legal backing and was thus immune to government whims and fancies.

Second, its universal applicability in rural areas, based on the principle of self-selection, helped avoid errors of targeting that plagued our public programmes.

Third, its indirect gains far outweigh its direct benefits of poverty reduction and employment generation.

While its primary purpose is to offer the rural poor manual unskilled jobs, it has enabled significant changes in the rural market for labour. Women make up more than half the workforce employed under MGNREGA.

The share of Scheduled Caste (SC) and Scheduled Tribe (ST) workers has been around a fourth, significantly higher than their population share. Self-selection by the marginalized has been a feature that continues even today.

It has contributed indirectly through infrastructure creation, which has boosted rural productivity.

It is difficult to quantify the indirect investment in agriculture through village level irrigation projects, access to markets provided by rural road building, gains of soil conservation and so on, all of which have helped increase farm productivity.

In many cases, these have been undertaken on land belonging to marginalized communities, raising agricultural productivity for the poorest farmers.

Second, MGNREGA wages have helped lift market wages and reduce rural poverty. Several studies credited the scheme for the significant rise in wages seen from 2008 to 2013 of more than 6% in real terms.

The scheme’s payroll not only helped raise incomes of the poorest, but also helped raise demand in the rural economy.

Under the UPA-II government, the programme gradually weakened. Unlike the initial phase under UPA-I, when wages under MGNREGA were kept higher than market wages, these were set lower than market levels after 2011-12.

The situation has worsened since then, with MGNREGA wages found to be lower than market wages in 20 states in 2023.

Since 2014, several other changes—related to its wage payments, mandate of biometric authentication and administrative conditions for states—have led to stagnation in real expenditure on the scheme.

So much so that in West Bengal, it has been suspended for two years in the wake of an administrative tussle with the Centre.

Despite MGNREGA wages being lower than market wages, almost a third of India’s rural households continue to take up work under the scheme

 Proof of the programme’s success (and value) was clearest during the covid pandemic, when millions of more workers sought and received jobs under it.

Yet, it suffers administrative apathy (from the Centre and states both), as reflected in our rural-wage stagnation since 2013. This has hurt rural demand and worsened rural distress.

With rural wages and farm incomes stagnant, the rural economy is currently in a vulnerable state. MGNREGA can serve as an engine to revive it.

Work provided under the scheme will have positive spillover effects on rural wages and productivity, and is likely to help revive consumption demand.

Given today’s global uncertainty, domestic demand will have to be the primary engine to drive economic growth.

In other words, MGNREGA has a vital role to play. The scheme proved its worth after the 2008 financial crisis and later during the pandemic.

It can do so again if Indian states and the Centre work together. The scheme needs an increase in its budgetary allocation, a hike in the wages paid under it and the removal of administrative bottlenecks.

Aligning MGNREGA with its stated objectives is not just a political necessity, but an economic imperative, given the distress in our rural economy.