MGNREGA and its effects on Indian Economy

Introduction
“The National Rural Employment Guarantee Act (NREGA), legislated in 2005, is considered one of the best
legislations by the erstwhile Dr Manmohan Singh-led UPA Government as it has been a bold attempt to make
the development process more participative and inclusive. This legislation embodies the true spirit of the
Directive Principles of State Policy enshrined in the Constitution of India by providing the right to work to the
poorest sections of society in rural India. In order to boost economic growth through inclusive development
policies that reduce rural unemployment and under-employment, this legislation aims at
1. providing guarantee of gainful employment within the vicinity of the rural people with a statutory
minimum wage; and
2. creation of durable assets and strengthening the resource base of the rural poor.
The MGNREGA has various work categories, namely, rural connectivity, water conservation and harvesting,
renovation of traditional waterbodies, land development, drought proofing, micro irrigation works, flood
control and protection, rural sanitation, Anganwadi, fisheries, rural drinking water and coastal areas.
Renamed in 2009 after the Father of the Nation, Mahatma Gandhi, this Act provides at least one hundred days
of guaranteed wage paid public employment in a financial year to every household whose adult members
volunteer to engage in unskilled manual labour.”1 “Adult members of a rural household, willing to do unskilled
manual work, may apply for registration in writing or orally to the local Gram Panchayats. The Gram
Panchayats after due verification will issue a Job Card will bear the photograph of all adult members of the
household willing to work under NREGA and it is free of cost. The Job Card should be issued within 15 days
of application. A Job Card holder may submit a written application for employment to Gram Panchayats,
stating the time and duration for which work is sought. The minimum days of employment have to be at least
fourteen. The Gram Panchayats will issue a dated receipt of the written application for employment, against
which the guarantee of providing employment within 15 days operates. Employment will be given within 15
days of application for work, if it is not then daily unemployment allowance as per the Act, has to be paid.
Liability of payment of unemployment allowance is of the States.”2

Research Questions
What has been the impact of MGNREGA on the overall Indian economy?
“The objective of MGNREGA, according to Ministry of Rural Development, is to enhance the livelihood of
rural people by guaranteeing 100 days of work in a financial year. As of 2016, the scheme has been
implemented in 661 districts across India. So far, about 27.84 Crore people have been employed through
NREGA, of which only about 10.72 Crore people (39%) are still actively employed. The budget allocated to
NREGA scheme was decreasing till Financial year 2015 because of lack of funds, change in government and
the corresponding effect can be seen in the number of person-days generated in a year. With the financial boost
to NREGA from Financial Year 2016, the number of person-days generated in a year has started increasing
from 2016. Although the scheme has promised to generate 100 days of work per person, in the last 4 years the
average days of employment were around 45-50 days. It has been observed that the ST households have a
higher average employment in comparison to the overall average employment. The total work taken up
through NREGA is about 100-120 Lakh in a year of which about 20% gets completed fully in a year. In the

1
Fernandes, D. (2015). Implementation of MGNREGA & Its Impact on Rural Madhya Pradesh. Indian Journal of Industrial
Relations, 505-516.

2
Dr. Arti Pandit Dhawan, A. K. (2017). Socio-economic impact oMahatma Gandhi national rural employment guarantee scheme
(MGNREGS) in Himachal Pradesh. International Journal of Commerce and Management Research, 1-8.
line with the labour budget, the wages have also varied similarly in the last 4 years. The wages of the unskilled
labour constitute about 75% of the total wages paid.”3 The top six states which have reaped the most benefits
of the scheme are Tamil Nadu, West Bengal, Rajasthan, Andhra Pradesh, Uttar Pradesh and Telangana.
“After the NREGA Act was passed by the parliament in 2005, the allocation of the funds for the project started
in 2006. The entire salary of the unskilled workers, 75% wages of the skilled and semi-skilled workers and
75% of the material expenses are spent by the Central Government. Rest all the expenses are taken care by the
respective state governments. Starting with a funding of Rs. 11,300 Crore in 2006”4 the funds have increased
every year, in the current year of 2019, government has allocated Rs 61,084 Crore making it the highest ever
allocation in a financial year.
The economy of a country is affected majorly by the Fiscal deficit and the allocation of funds for the scheme
of MGNREGA has had considerable impact on Fiscal deficit since the beginning. Fiscal Deficit is the
difference between total revenue and total expenditure of the government. It is an indication of the total
borrowings needed by the government. While calculating the total revenue, borrowings are not included. There
has been a weak relationship between the MGNREGA fund allocation and fiscal deficit. This means that with
an increase in fund allocation the fiscal deficit increased for the central government and there was hence an
increase in public debts. This acts as a major burden on the Indian economy.
Another important aspect of Indian economy is wages and employment, “agricultural wages have increased a
lot after the introduction of NREGA in 2005. The pattern is observed to be same for industrial states like
Maharashtra, Tamil Nadu etc. and for backward states like Bihar. The amount of increase in wages was higher
in the industrial states because of the presence of other infrastructure and institutions for effective
implementation. In industrial states like Maharashtra, the expected agricultural wage in December-13 is
Rs.67.34 but the actual wage stood at Rs.215.90. (220% Increase). In addition to agricultural wages, non-
agricultural wages (like daily wage of a carpenter) also increased in line with the agricultural workers.”5 The
increase in wages led to an increase in income which further led to an increase in household expenditure.
The scheme of MGNREGA has also helped in financial inclusion. “Before the introduction of Jan Dhan
Yojana, NREGA has helped in achieving financial inclusion of the lower strata of the society. In certain states,
NREGA workers are paid through their accounts in banks and post offices. The scheme is known to have
removed corruption at several levels through direct transfer of wages. As of 2015, 90% of NREGA payments
are done through bank accounts.”6
What has been the impact of MGNREGA on rural Madhya Pradesh?
(QUESTION based on the literature review of the article “Fernandes, D. (2015). Implementation of MGNREGA &
Its Impact on Rural Madhya Pradesh. Indian Journal of Industrial Relations, 505-516”)

MGNREGA has been a policy implemented in a number of States and in each state the results are different.
Therefore, in order to efficiently study the effects of MGNREGA it is important to focus on particular states.
Thus, the focus will be on the state of Madhya Pradesh in this essay. Madhya Pradesh is the second largest
state situated in Central India. “A large proportion of its population consists of backward communities such
as SCs and STs. Out of the total rural work force, farmers constitute 61.4%.”7 In a demand driven employment
generation scheme like MGNREGA, the awareness among people plays an important role. In the state of
Madhya Pradesh, it is found that the basic provisions of the act and scheme were not clear to the beneficiaries.

3
Sandeep N, V. T. (n.d.). Impact of Government Schemes on Indian Economy. Bangalore: Indian Institute of Management.

4
Sandeep N, V. T. (n.d.). Impact of Government Schemes on Indian Economy. Bangalore: Indian Institute of Management.
5
Sandeep N, V. T. (n.d.). Impact of Government Schemes on Indian Economy. Bangalore: Indian Institute of Management.

6
Sandeep N, V. T. (n.d.). Impact of Government Schemes on Indian Economy. Bangalore: Indian Institute of Management.

7
Fernandes, D. (2015). Implementation of MGNREGA & Its Impact on Rural Madhya Pradesh. Indian Journal of Industrial
Relations, 505-516.
Half of the rural population was not aware about even the basic requirements for applying in the scheme.
Awareness of the basic benefits of scheme was very low. The implementation of the policy has also not been
very efficient since there was a shortage of administrative and technical personnel. Also, there have been
challenges because of the complex structure including block and panchayat levels. The policy guarantees for
100 days of employment but this target has not been achieved completely. Accountability and transparency in
the payment of wages for this policy is crucial for the credibility of the scheme. Primary data from 4 districts
of M.P. showed that only 47.9% of the people were given stipulated wages and only 56% were given wages
regularly. This effectively means that the payment for half of the workers has been either delayed or irregular.
The main feature of this policy is that it provides wage employment for 100 days, thus enhancing household
income. As per the study of four districts of M.P. 77.3% of households benefitted economically from the
MGNREGA. There was a sharp increase in rural wage rates which increased household income. Increase in
household income has the capacity to improve human capital. It improved education. Migration also decreased
upto 25%. Employment was created during lean season as well for the rural population.
However, despite the benefits it is important to highlight the need for greater awareness of the processes of
MGNREGA among all sections of rural population. Also, a great deal of efforts needs to be made for
improving the transparency, accountability and monitoring mechanisms for more effective implementation of
MGNREGA so that it is able to translate into livelihood security for millions of households in rural areas. Its
impact must be monitored effectively so that best practices could be replicated and the shortcomings corrected
in time so that the poorest among the rural communities may benefit from MGNREGA. Since 2015, after the
new government took over the MGNREGA has been much more efficient due to linking of bank accounts and
removal of third parties, between the Central government and the beneficiaries.
What has been the impact of MGNREGA on the State of Himachal Pradesh?
(QUESTION based on the literature review of article “Dr. Arti Pandit Dhawan, A. K. (2017). Socio-economic impact
of Mahatma Gandhi national rural employment guarantee scheme (MGNREGS) in Himachal Pradesh. International
Journal of Commerce and Management Research, 1-8.”)

“There are 11 Lakh 41 thousand cardholders registered under MGNREGA in the Himachal Pradesh. The
Government is planning to use the fund of Zila Parisad in the scheme in which material will be purchase from
the ZIP fund and wages will be paid from the MNREGA. Govt is thinking about to categorized the work in
scheme according to women, senior citizen and youth. The heavy work will be assign to the youth and the
light wok to the women and seniors citizen. Convergence in the State is being undertaken by involving Public
works department, Forest department, Soil conservation department, Horticulture department, Silk Seed
production department. The Government of Himachal Pradesh allowed to do repair work under MGNREGS.
It will be allotted in repair of various footways, roads and other development work, earlier there was no any
such provision of repairs under this act.”8 In Himachal Pradesh, this scheme has been made fully functional,
it has made considerable impacts in the socio-economic life of the rural people. The highest impact in
improvement of standard of living is seen among the people belonging to SC category and second comes the
ST category. After that came the OBC and then the General category. Thus, in all four categories there has
been considerable increase in the standard of living.
MGNREGA has also had an impact on migration from rural to urban areas. “In all the four categories people
noticed moderate reduction in the migration from rural to urban areas. In SC category 9.0 percent of the people
did not noticed any reduction in migration, 13.30 percent up to some extent, 43.1 percent up to moderate
extent, 18.5 percent up to high extent and 16.1 percent up to very high extent. In ST category 12.8 percent did
not noticed any reduction while 10.1 percent has noticed up to some extent, 48.3 percent up to moderate extent,
19.5 percent up to high extent and 9.4 percent up to very high extent. In OBC category 3.2 percent did noticed
reduction in migration up to some extent, while 54.8 percent up to moderate extent, 16.1 percent up to very

8
Dr. Arti Pandit Dhawan, A. K. (2017). Socio-economic impact of Mahatma Gandhi national rural employment guarantee scheme
(MGNREGS) in Himachal Pradesh. International Journal of Commerce and Management Research, 1-8.
high extent and 25.8 percent up to very high extent. In General category 6.1 percent of the people did not
noticed any reduction in migration while 13.70 has noticed reduction up to some extent and 49.8 percent up
to moderate extent, 13.1 percent up to high extent and 17.3 percent up to very high extent.”9
Thus, the MGNREGA, which is one of the successful schemes of rural development in India, has worked quite
effectively in the state of Himachal Pradesh as well. It was found that the implementation of this scheme has
improved the overall standard of living of the people in Himachal Pradesh. The increase in rural standard of
living helps in improving economy of the country by reducing unemployment and poverty, also, reduction in
rural to urban migration reduces burden on economies of urban areas.

Conclusion
The introduction and implementation of NREGA posed financial difficulties for the Government. It has had
an impact on the fiscal deficit status of the country. Given the huge expenditure, NREGA also did not fail in
delivering its major objectives. Although the provision of 100-days of work is never fully achieved, given the
implementation constraints, it increased the real wages, increased productivity, increased housing expenditures
on food and services since there was an increase in standard of living and it reduced poverty and migration.
MGNREGA households were able to impart better education to their children due to increased income. Most
important of all, NREGA has helped in creating rural infrastructure like wells, tanks, roads etc that are
supposed to have the multiplier effect in the economy. Hence, MGNREGA could be seen as a scheme that
gave both the long-term and short-term benefits to the rural people.
However, it will not be wrong to say that the scheme also has certain constraints, Lack of awareness is a major
issue, the government and the better placed people of society should contribute by spreading awareness about
MGNREGA and forming self-help groups. The problems of planning regarding, Land dispute, Administrative
issues like forest clearance and Public obstruction should be resolved by better and more efficient planning.
Issues regarding payment of wages should also be better looked into.
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9
Dr. Arti Pandit Dhawan, A. K. (2017). Socio-economic impact of Mahatma Gandhi national rural employment guarantee scheme
(MGNREGS) in Himachal Pradesh. International Journal of Commerce and Management Research, 1-8.
Bibliography
Dr. Arti Pandit Dhawan, A. K. (2017). Socio-economic impact oMahatma Gandhi national rural
employment guarantee scheme (MGNREGS) in Himachal Pradesh. International Journal of
Commerce and Management Research, 1-8.
Fernandes, D. (2015). Implementation of MGNREGA & Its Impact on Rural Madhya Pradesh. Indian
Journal of Industrial Relations, 505-516.
Sandeep N, V. T. (n.d.). Impact of Government Schemes on Indian Economy. Bangalore: Indian Institute of
Management.