Budget 23: Could MGNREGA budget cuts worsen India's rural poverty?

Last year, India ranked 107th out of 121 countries in the Global Hunger Index released in October. Just a few weeks ago, as January 2023 began, the Central Government, after much anticipation, ended the free foodgrain scheme under the Pradhan Mantri Garib Kalyan Yojana (PMGKY), reducing the amount of foodgrains that would be provided free of cost under the Public Distribution System. Amid a global food insecurity, employment crisis and inflation hindering the domestic markets, the Union Government, in its budget has given another blow to India’s rural poor - a drastic cut in the allocations made to the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA).

“The government seems to be ready to wind up the MGNREGA. There is a demand for the scheme, but the government does not want to acknowledge it. Moving towards mechanisation, it is diverting MGNREGA funds to other sectors,” says Rajan Kshirsagar of All India Kisan Sabha (AIKS).

The Government has allotted Rs 60,000 crore for MGNREGA for the year 2023-24, cutting down nearly 32 percent from the revised estimate of Rs 89,400 crore. In fact, prior to the budget, activists from Peoples’ Action for Employment Guarantee (PAEG) and the NREGA Sangarsh Morcha had demanded an allocation of Rs 2.72 lakh crore if the government wants to ensure work to those already associated with MGNREGA in the last year.

Launched in 2006, Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) under the MGNREGA is a social security measure that “aims to enhance livelihood and security in rural areas by providing at least 100 days of employment in a financial year to every household”. As per its website, the scheme currently has 15.07 crore active workers.

MGNREGA funds and food crisis

Experts fear that the decline in the fund allocation to MGNREGA is going to add to the already existing food crisis in the country. 

“The budget is presented in the context of a global food crisis, particularly against the backdrop of the conflict in Ukraine. This is threatening to create a food shortage in many regions. It is threatening to create food inflation in many places. The budget had a primary responsibility of keeping the farmers and the consumers protected, immune from the impact of this food crisis, by ensuring adequate availability and affordable prices of food. However, it has done the opposite of what it should have,” says Prof. R Ramakumar of the Centre for Study of Developing Economies, School of Development Studies, Tata Institute of Social Sciences (TISS).

Here is the Budget allocation for major schemes. A complete denial to social security of millions of hardworking Indians #Budget2023@roadscholarz @NREGA_Sangharsh pic.twitter.com/yP3ajQwKl1

— Right to Food, India (@rozi_roti) February 2, 2023

A few weeks ago, the government reduced the scope of PMGKY and cut the kilograms of foodgrains which were given free.

“This was a very important problem as the farmers, consumers would now have to buy this extra 5 kg of foodgrains from the market by paying a price. In this context, given that there is also a broader fall in employment, the job of the government was to keep rural incomes high. Only then they can buy the foodgrains from the market. However, the fall of NREGA funding has happened in these unfortunate circumstances,” Ramakumar explains.

Under the PMGKY, which was introduced in April 2020 at the time of the pandemic, an extra 5 kg of free foodgrains was provided to every ration card holder in addition to the entitlement under the National Food Security Act. The ration card holders were thus entitled to a 10 kg ration per person. In December 2022, the government discontinued the scheme, incorporating it into two existing food subsidy schemes citing improvement in the economic prospects and opening of the markets. Many had condemned this step, calling it regressive.

“Even though the free allocation of foodgrains was doubled during the pandemic, the pandemic actually showed its impact. It showed that the scheme reduced the suffering of people, it reduced the intensity of hunger and people could spend that money somewhere else. It would have been much better to simply institutionalise the expanded version rather than cutting back on it,” Ramakumar adds.

Moreover, MGNREGA also helps aid food and nutrition-related government schemes.

“MGNREGA discourages distance migration. This ensures better implementation of other schemes, especially nutrition-related schemes like Mid-Day Meals. People do not get left out of these schemes due to migration. All these schemes are dependent on each other. So proper budget allocation to each scheme ensures the welfare of families,” Ashwini Kulkarni of the NREGA Consortium said.

What is happening to the rural poor?

“MGNREGA plays an important role in supporting the rural economy. Against the backdrop of the global recession, it was necessary that the government strengthen the scheme. However, the budget has been a disappointment,” Kshirsagar says.

MGNREGA is a law. No matter how much budget you have allotted to it, if the demand is higher, the government has to spend as per the demand. 

“It is a promise, a guarantee. But when the budget allocated itself is low, it gives a signal to the bureaucracy that it should avoid taking more work and spend a higher amount under the scheme, even if there is a demand. Thus the demand is seldom met,” Kulkarni said.

Ramakumar added, “They can argue that it is a demand-based scheme and if people demand, allocations would be made. But it is always better to keep the allocations in the budget itself, otherwise, it will have to be cut from somewhere else.”

In the last three years, the government has had to spend an excess amount on MGNREGA as the budget allocations made were low.

Reduction in free foodgrains and the cuts in NREGA are two major blows, to the landless labourers, especially in rural areas, Ramakumar asserts. They have to buy 5 kg extra grains from the market and on top of it, they will have less income coming in through NREGA.

Throwing light on the plight of India’s farmers in this context, he further explains, “At the moment, the farmers are facing a fertiliser crisis that is threatening to raise the input cost enormously. Many of them are going to use much less fertiliser, as a result of which, productivity is going to fall. Increased input costs will cut into their profits. Instead of increasing production and productivity, the government is spending money on natural farming, etc. there is no scientific validation anywhere. These interventions will ultimately reduce productivity.”

In 2022, the rural retail inflation was consistently higher than the urban inflation rate, staying above 6 percent. The breakdown of these figures showed that inflation was driven by high food prices. The rate of inflation based on the Consumer Price Index Number for Agricultural Labourers(CPI-AL) and the Consumer Price Index Number for Rural Labourers (CPI-RL) stood at 6.38 percent and 6.60 percent in December 2022.

“If agriculture and other sectors grow, the excess labour power in agriculture could be absorbed. But that does not happen. Hence, MGNREGA is necessary even this year. In such a situation, the decline in the funds was very unexpected,” Kulkarni says.