A programme in peril

Print edition : February 05, 2016

IT has been clear for some time that the National Democratic Alliance (NDA) government at the Centre is not particularly mindful of its legal obligations, particularly where rights-based laws are concerned. The Centre has been continuously and blatantly violating the requirements laid down by the Supreme Court regarding anganwadi centres, the Right to Education Act and the National Food Security Act. This has essentially occurred through budgetary under-provision, and also a cut-down of the financial outlays necessary to ensure the proper functioning of these programmes. But even in this sorry context, what stands out is the shoddy treatment meted out to the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA).

The MGNREGA was passed in Parliament in 2005 with the support of all parties, including the Bharatiya Janata Party (BJP) and other current constituents of the NDA. The Act quite clearly specifies that its implementation must be demand-driven, with demand for work from rural households (up to the specified limit of 100 days a household) driving the setting of up public works, and with the financial flows required to sustain these automatically flowing from the Centre to the State governments. The procedures to ensure this were clearly laid out in the Act’s rules and guidelines. Indeed, the earlier guidelines made it clear that once 60 per cent of the disbursed funds had been spent in a State, the next round of fund transfers should be made so as to prevent any stoppages or delays.

So the idea of setting limits to Central government spending under the MGNREGA is bizarre and, more importantly, illegal. Yet caps on spending on this programme were evident even under the previous United Progressive Alliance government as its Finance Minister P. Chidambaram began to cut the outlays for it. Under Prime Minister Narendra Modi’s regime, cuts have become the norm, to the point where Finance Minister Arun Jaitley appeared to find nothing wrong in declaring in his Budget speech that he would provide an additional Rs.5,000 crore above his declared outlay on the programme if tax revenues went up sufficiently. This was of a piece with the contempt Modi displayed for the MGNREGA on the floor of Parliament when he famously declared that this was a monument to the previous government’s failures.

Cut in outlays

This appalling disregard for the Central government’s legal obligation has been associated with a significant reduction in outlays. As it happens, the MGNREGA has in general been much cheaper for the government than the projections before the law was implemented would have suggested. As Chart 1 shows, total spending on this programme grew in nominal terms until 2010-11, as the programme was being rolled out in various districts across the country and beginning to find some stability. Thereafter, however, it has declined even in nominal terms. In real terms, that is, deflated by inflation as measured by the Consumer Price Index-Agricultural Labourers, it has declined much more sharply, while the spending has dropped precipitously in terms of share of the gross domestic product.

This has been done by restricting the flow of funds from the Centre to the States so that they end up with pending obligations that are carried over into the next financial year. In the current financial year, for example, 18 per cent of the budgetary outlay was required simply to meet the pending obligations of the previous year. This was typically associated with significant amounts of unpaid wages so much so that delayed wage payments had become a major bane of the programme. State and local governments in turn avoid setting up more works because of the inability to fund them and restrict the “demand for work” by the simple expedient of not accepting or recording such demand until funds are available. In any case, where wage payments have been significantly delayed (in some instances for a year or more), workers themselves are less likely to be interested in seeking work under it. So a programme that was explicitly designed to be demand-driven has now become entirely determined by the outlays made available by the Centre, and these have become more niggardly over time.

The first year of the NDA regime was the most striking in this respect, as Chart 1 indicates. The apparent revival in MGNREGA spending in the first half of the current financial year, which has been much advertised by the government, has to be seen in this context, as the levels of spending in real terms—even if they were to be maintained for the rest of the year at the same rate—would still be less than in previous years such as 2010-11. This obviously has direct effects on the viability and effectiveness of the programme. Chart 2 shows how the impact of the programme in terms of employment generation has been affected by the cutback in funds.

The number of households that benefited from this programme peaked at 55 million in 2010-11, while the person-days of employment generated peaked at 2.8 billion in the previous year, 2009-10. Even at that peak, the programme was nowhere near providing the promised 100 days of work a household—instead the average across the country was only 54 days a household. This too has fallen since then so that in the past few years the days of work a household under the programme have been less than 40.

This is the context in which the latest drama around the MGNREGA is being played out. As mentioned earlier, 2014-15 was a year when the funds were cut sharply and the States were denied the funds essential for sustaining the programme. It got to the point where Manik Sarkar, the Chief Minister of Tripura, the best performing State in recent years, was actually forced to come and sit on a day-long dharna at Jantar Mantar in New Delhi demanding that the Centre fulfil its legal obligation of providing the money for this programme to run. Even such a desperate measure had little impact on a the Modi government that in its first year was flush with the arrogance of power and complacent in its perception of getting away with whatever it wanted.

Sobering effect

However, 2015 was a sobering year for the Central government, particularly the BJP, which faced significant electoral defeats in the State Assembly elections in Delhi and Bihar and was unable to pass the laws it wanted to in Parliament. It was also a year in which agrarian distress became widespread once again, after a period when it had been on the decline. The increasing difficulties farmers face and the impact of declining real wages in rural areas in most parts of the country were significant enough to come to wider public attention. It is possible that even in BJP-ruled States the positive role played by the MGNREGA in stabilising rural incomes and providing crucial sources of demand for the economy was becoming evident. This may be why, after the first quarter (April-June 2015) when the Central government continued its cynical approach towards the programme, there was an apparent reversal in the second quarter. More funds were released in the July-September quarter, and this had an immediate and strikingly beneficial impact in terms of reducing delays in wage payment and enabling local governments and panchayats to set up more works. So the second quarter, which is normally not a period when many MGNREGA works have been set up in the past as it is the period of the monsoon and sowing, became one of sudden dynamism. While data on the third quarter are not yet available on the official website, it is possible that this dynamism continued into the third quarter, as field reports suggested.

The very fact that the mere release of more funds from the Centre to the States could have such a positive effect shows what a huge pent-up demand for the programme exists across the country and the extent to which the Central government was wilfully suppressing the MGNREGA in complete defiance of the law. Yet this improvement could have been another flash in the pan, a temporary spurt of enthusiasm from a government that still remains fundamentally uncommitted to it.

This becomes clear from two letters written by the Ministry of Rural Development to the Finance Minister. The letters, which the activists Aruna Roy and Nikhil Dey accessed by invoking the Right to Information Act, are actually damning in that they establish the proclivity of the Finance Ministry to curb this spending and deny the legal requirement of making funds available. Written in late December 2015 by the Minister and the Secretary of Rural Development, the letters make the point that 95 per cent of the funds provided for the entire year had already been spent and the programme would effectively come to a halt unless additional money was provided immediately. The letters note that the Ministry has received a number of requests from State governments not only for money to meet additional spending but pending liabilities. (Obviously, these requests received in the previous months could not be responded to because the Ministry itself was not given the requisite funds.) The letters point out that the government’s own declaration that the days of employment provided a household could be increased to 150 in the six drought-affected States of Andhra Pradesh, Karnataka, Madhya Pradesh, Odisha, Telangana and Uttar Pradesh would likely lead to further spending in these States. (It is ironic that some of these States are among those already in deficit, and with no money at all to spend on the programme.)

Despite all this, until the first week of January 2016, the money was not forthcoming—not even the additional Rs.5,000 crore so “generously” promised by Arun Jaitley, which he clearly ought to have provided since tax revenues were already higher than expected. It may well be that the public outcry generated by the media exposure of these letters and related facts will force the Finance Ministry to release at least this amount to the Ministry of Rural Development and thereon to the States. But it is still appalling that such public discussion and outcry is required before the Central government does what it is legally obliged to do. Without constant pressure of this sort, there remains the danger of the government backsliding and seeking to cut down on this programme.

This is probably not surprising given the general orientation of the NDA government, but it is both politically and economically stupid. Politically stupid because in a context of continuing rural distress and lack of productive employment opportunities the constituency demanding such employment is huge and even extends beyond direct beneficiaries to those who would indirectly benefit from it. Economically stupid because in an economy in which there is precious little happening in terms of demand generation investment rates are low and even the corporates are now demanding more fiscal stimulus. MGNREGA spending is known to have large multiplier effects that create increases in rural income well beyond the actual spending because those who receive the wages spend more locally, and this can stimulate what is once again a depressed rural economy. Sad indeed that a programme with so many positive effects still has to be fought for at every turn.

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