Addressing challenges and enhancing effectiveness of MGNREGS

Source: The post addressing challenges and enhancing effectiveness of MGNREGS has been created, based on the article “A better way to fix MGNREGS” published in “Business standard” on 22nd May 2024.

UPSC Syllabus Topic: GS Paper 2-Governance-Welfare schemes for vulnerable sections of the population by the Centre and States and the performance of these schemes

Context: The article discusses potential changes to the MGNREGS, a program providing rural jobs in India. It has been effective during economic troubles but faces issues with misuse and financial burden. The government is considering making states share costs to improve management and reduce misuse. Impacts of the death of Iran’s President Ebrahim Raisi on Chabahar project

For detailed information on MGNREGS read Article 1, Article 2

Why is MGNREGS important?

Economic Support During Crises: MGNREGS has been crucial during economic downturns. For example, during the 2008 global financial crisis, economic growth dipped to 3.1% from 7.7% the previous year, and job demand under MGNREGS spiked.

Covid-19 Response: The scheme was a major support tool during the Covid-19 pandemic. In 2020-21, job demand surged as the economy faced severe contraction.

Financial Allocation Correlation: The years with the highest financial outlay for MGNREGS (over 3% of the Union government’s expenditure or above 0.5% of GDP) coincided with economic distress periods.

Indicator of Rural Economic Health: Persistent job demand under MGNREGS signals ongoing issues in the rural economy, helping policymakers identify and address rural economic distress.

What challenges does MGNREGS face?

Financial Burden on the Central Government: MGNREGS is fully funded by the Centre, which strains government finances. For example, it accounted for 1.9% of the Centre’s total expenditure in 2023-24.

Misuse of Funds: Some states may misuse the scheme by funding their own welfare projects. This misuse is noted in states with higher wages, diverting funds meant for distressed workers.

Lack of Effective Monitoring: There is inadequate monitoring of the scheme’s implementation, leading to possible misuse. Strengthened monitoring mechanisms are needed.

Uneven Utilization: States like West Bengal, Tamil Nadu, and others have disproportionately high usage. In 2022-23 and 2023-24, five southern states used over a third of the total funds, highlighting uneven distribution and potential misuse

What are the proposed changes to MGNREGS?

State Cost Sharing: The government suggests that states should share a portion of MGNREGS costs to improve oversight and quality of work. This is proposed to address the financial burden on the Centre.

Improved Monitoring: Strengthening the monitoring system is proposed to prevent misuse of funds. This is crucial as states may divert funds for their own welfare schemes. For example, West Bengal was denied funds in 2022-23 and 2023-24 due to non-compliance with directives under Section 27 of the MGNREG Act, 2005.

Legal Amendments: Amending the law may be necessary if states are to share the costs, ensuring proper implementation.

Question for practice:

Evaluate the effectiveness of MGNREGS in providing economic support during crises.