MGNREGS to see record spending as demonetisation drives demand

New Delhi: Spending under the flagship Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) could touch a record Rs58,000 crore in 2016-17.

Even after accounting for spillover of dues from last year, it is still among the highest outlays under the programme since its inception in 2006.

Why has this surge in spending happened?

A decent monsoon has ensured that agriculture is on the mend, reinforced by recent reports of a sharp-pick up in sowing of the winter crop. This implies that demand for work should be less than that in a drought year.

Perusal of the MGNREGS data reveals a big spike in demand for work in states such as Bihar, which saw migrant labour returning home after demonetisation led to drying up of projects in Punjab. At the same time, states such as Maharashtra are reeling under the impact of drought, leading to an increase in demand for work.

MGNREGS was created as a safety net for the rural sector. It guarantees 100 days of employment a year, especially in between the two main crop seasons, for one member of every rural household.

In key states such as Bihar, Rajasthan and Maharashtra, the total number of people who demanded and got work under the MGNREGS in 2016-17 in the months of November and December shows a jump over 2013-14, which was a normal monsoon year. For Bihar, it also shows an increase over 2015-16, which was a drought year that resulted in depressed agricultural activity, forcing farmers and farm hands to look for work under MGNREGS.

According to analysts, the spike in demand for work in the months of November and December captures the impact of demonetisation.

On 8 November, Prime Minister Narendra Modi announced the withdrawal of Rs500 and Rs1,000 notes with immediate effect. This resulted in about 86% of currency in circulation being discounted as legal tender, putting a strain on all sectors of the economy, including small and medium businesses.

“The cash crunch due to demonetisation did force workers to leave their jobs and go back home,” said G.R. Senthilvel, owner of Tremendouss Exports, a textile firm in Tirupur, Tamil Nadu, by phone. “The primary reason why the textile hub of Tirupur suffered is because of the migration of the labour force. We cannot blame workers who came from different parts of India including Uttar Pradesh and Bihar as we could not provide them wages. Small factories got impacted in a big way due to dislocation of labour force.”

According to Himanshu, assistant professor at the Jawaharlal Nehru University, New Delhi, and a Mint columnist, “most of the employees in small and medium units suffered because of sudden closure of units or workers being asked to leave. So they went back to their villages and started looking for jobs under MGNREGS”.

“If you spend the same amounts of money in a drought year and a normal monsoon year (on MGNREGS), it shows that demonetisation has had an impact. In fact, this is proof of distress,” he said.

The reference was to expectations that the rural development ministry would spend as much as Rs58,000 crore this fiscal year—from 1 April 2016 to 31 March 2017. According to data on the rural development ministry website, total spending under MGNREGS till January 2017 is slightly more than Rs52,000 crore.

“If you take away some Rs12,000 crore from the Rs58,000 crore estimated spend—which went towards payments of salaries last year—you are left with Rs46,000 crore for 2016-17. This is equivalent to the total spend last year under MGNREGS, which was a drought year. And this shows there is demand for MGNREGS in a normal monsoon year,” Himanshu said.

“Some states have been quick to respond to the crisis which is showing up in the numbers like Bihar. There are other states that haven’t responded as well to the crisis and therefore demand for jobs and number of people getting employment are not accurately reflected,” he added, referring to data in 2015-16 compared with 2016-17.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.