Context

The Mahatma Gandhi National Rural Employment Guarantee Scheme or appears to be under scrutiny.

Advantages of Mahatma Gandhi National Rural Employment Guarantee Scheme

• Resilience During  Pandemic: Despite many doubts and questions that MGNREGS was subjected to over the past several years, it appears to have stood the test of time, not least because it turned out to be a major instrument for helping rural workers during the Covid years.

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• Boosting of  MGNREGS Demand during Covid: Even as managers of the Indian economy were battling its worst contraction, the scheme for creating rural jobs turned out to be a useful tool, with the demand for jobs under MGNREGS jumping in 2020-21.

Reasons for Overhauling MGNREGS

• Economic Recovery Reduces MGNREGS Burden: As economic distress diminishes and job demand decreases, the financial strain on government finances also lessens.
  • For example, in 2023-24, MGNREGS constituted only 1.9% of the Centre’s total expenditure, a level comparable to that of 2014-15 or even earlier in 2006-07 when job demand was lower due to a stronger economy.
• Indicator for Economic Distress: Persistent demand for rural jobs beyond crisis periods signals policymakers to assess the rural economy’s health.
  • Consequently, the need for MGNREGS jobs serves as a vital indicator for policymakers to gauge ongoing economic distress in rural India, crucial for maintaining overall economic demand.
• Enhancing MGNREGS Efficiency: MGNREGS is one of those schemes where the Centre alone bears the entire cost of running it, but the work done under the scheme is monitored by the states.
  • It is argued that if the states have a financial stake in the scheme, the quality of the work funded under MGNREGS will improve, leading to the creation of more productive and useful assets.
• Ensuring Demand-Driven Implementation: MGNREGS is meant to be a demand-driven scheme where money should be spent on projects only when there are distressed workers seeking jobs.
  • Existing projects that are to be implemented by the states under their own respective budgets should not be financed through MGNREGS outlays.
  • Such misuse appears to be more prevalent in states where the wages are relatively high, and these states could be diverting the scheme’s outlays to fund their own welfare schemes.
• Huge Fiscal Burden:  Between 2018 and 2022, West Bengal led MGNREGS fund utilization, followed by Tamil Nadu, Andhra Pradesh, Uttar Pradesh, Madhya Pradesh, Rajasthan, and Karnataka. 
  • In 2023-24, five southern states—Andhra Pradesh, Karnataka, Kerala, Tamil Nadu, and Telangana—accounted for over a third of total Centre spending. 
• Non Compliance: West Bengal was denied funds in 2022-23 and 2023-24 due to non-compliance with Union government directives under Section 27 of the MGNREG Act, 2005.Therefore, is if the Centre has the powers to withhold funds under the scheme from a state that is non-compliant of the rules.

Way Forward

• Cost-Sharing in MGNREGS: Requiring states to share 20 or 40 percent of MGNREGS expenses may ease the Centre’s fiscal burden but won’t tackle fund misuse.
• Focus on Collaborative Monitoring: The Centre should be focused more on fixing its implementation problems perhaps through a collaborative monitoring mechanism, instead of just reducing its fiscal burden.

Conclusion

Effective reforms should prioritize accountability, transparency, and alignment with the scheme’s core objectives for sustainable rural development.

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