What MGNREGS can tell us about the slowdown

Many high-frequency economic indicators suggest that India is in the midst of a severe economic slowdown. The increase in the number of people working under MGNREGS also seems to indicate that rural India is not in great shape. Mint examines the issue.

How many people have used the scheme?

A total of 60.3 million individuals have worked under the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) till 23 November of fiscal year 2019-20. If this pace holds till the end of the financial year, the number will shoot up to about 90 million. This will be 16% higher than the total number of people who worked under MGNREGS in 2018-19. The only other time a similar jump happened was between 2014-2015 and 2015-2016, when the number of individuals working had gone up by around 16.2%. This clearly tells us that things aren’t well in rural India.

What has its trend been since FY15?

Between 2014-15 and 2019-20, the number of people working under MGNREGS would have gone up from 62.2 million to more than 90 million—an increase of 45%. This scheme is self-selecting and only those who want to do manual unskilled work can volunteer for it. So what does the rise tell us? It means that people come looking for work under MGNREGS only when they do not get other jobs. With an expected increase of 16% in the number of people working under MGNREGS this year, we can conclude that there aren’t enough other jobs going around, forcing people to resort to the employment scheme.

How much money is the govt spending under it?

The Union government has released ₹53,571 crore for the employment scheme so far this fiscal. If this pace is maintained, the total amount of money released for MGNREGS during the financial year will likely cross ₹80,000 crore. This will be a jump of close to 29% from 2018-19, when ₹62,125 crore had been released for the scheme.

So what’s the problem with MGNREGS?

With more people opting to work under MGNREGS, the Central government has obviously allocated more money to the scheme. However, the average cost per person per day to run the scheme—of which the daily wages paid to people working under the scheme is a major part—has grown at a very slow pace since 2014-15, from ₹206 to ₹249 per day, at the rate of 3.9% per year. This has barely kept pace with the rate of inflation in the country. In fact, in real terms, the payments made per person have shrunk.

Can the govt spend its way out of the slump?

Higher spending under MGNREGS can, at best, act as a palliative to the current economic slowdown. If solving problems was just about spending more money, things would have been very simple—which they clearly aren’t. To get the country out of the current slowdown, a series of structural reforms are needed on many fronts. Over and above this, the Union government needs to carry out proper allocation of capital and spend money in areas that have the most social and economic benefits.