In its bid to streamline the Mahatma Gandhi National Rural Employment Guarantee Act (2005), the National Democratic Alliance government has been effecting a series of changes to the scheme, leading 28 economists to write to Prime Minister Narendra Modi expressing dismay on Monday.

“It is alarming to hear of multiple moves (some of them going back to the preceding government) to dilute or restrict the provisions of the Act,” the economists wrote. “Wages have been frozen in real terms, and long delays in wage payments have further reduced their real value.”

MGNREGA is a social security measure that aims to ensure livelihood security in rural areas by providing at least 100 days of guaranteed employment in a financial year to every household whose adult members volunteer to do unskilled manual work. Since its inception in 2006, it has generated 1,762.3 crore person-days of work, at a cost of Rs 266,063.43 crores. However, the rural development ministry, which supervises the programme at the centre, is said to be discussing several significant changes to the act, including reducing the number MGNREGA-applicable districts from the entire country to just 200 districts.

One change is already being felt in states: a steady funds squeeze.

States projected an estimated 278 crore person-days of work for this year, which would amount to an estimated cost of Rs 66,000 crore. Even as the Ministry of Rural Development accepted this figure, the budget allocation was for only Rs 34,000 crore for this financial year.

While this budget limitation is not new, what is unprecedented this year is the official communication of a fund cap to states indicating the unlikely prospect of getting any additional funds from the Ministry of Finance.

States have been incurring liabilities since 2009, indicating a shortfall in allocation, when the central government first began to run on reduced budgets. The Modi government’s move is only the most drastic. The budget allocation for MGNREGA has remained more or less consistent at around Rs 33,000 crore, even as the total state expenditure on the scheme has increased.

“The shortfall began in 2009,” said Nikhil Dey, an activist with the Mazdoor Kishan Shakti Sangthan. “A very good way to assess the NREGA is to look at the amount of money allotted to it. It has been steadily falling. It began as roughly 0.8% of the GDP. Today it is around 0.24%.”

Inadequate funds

In June, Mihir Kumar Singh, Commissioner of MGNREGA in Bihar wrote a frantic letter to the Ministry of Rural Development asking for funds. If they were not received, the state would not be able to continue the programme, he warned. Towards the end of August, SM Raju, secretary of the state's rural development department, wrote another letter citing further liabilities and asking the government to clear them.

(Bihar does have a history of scams when it comes to the MGNREGA. In 2009, it turned out that implementing authorities had embezzled almost 70% of the funds allotted to the scheme.)

A senior official from Bihar who asked to remain unidentified, said that the funds received in August had been exhausted clearing liabilities from the previous year.

“The government is now asking us to give evidence of our liabilities,” he said. “We will now have to continue the programme only with a backlog of wages. This is how it happens with all the states.”

Chhattisgarh, for instance, had asked for Rs 2,800 crore to manage the scheme. It received only Rs 1,600 crore. Half of that amount went in liabilities for wages due to workers.

“We said it would not be possible for us to manage with this amount as half of the year has gone,” said PC Mishra, MGNREGA commissioner from Chhattisgarh. “It is not a question of Chhattisgarh, but everyone. So far we have been spending as per our labour budget.”

Mishra pointed out that the reduction in funds puts states in violation of the law. According to the MGNREGA, state governments cannot turn away anyone asking for their 100 days of employment. The union government is meant to provide the full amount of the wages to the state government, and this must be paid to workers within 15 days. Without funds, states are running the scheme in the red and will be forced to either turn away workers or pay them after a long delay.

Chhattisgarh has dues pending for almost three months, said Mishra. However, this was the case with the previous government as well. The state first incurred liabilities for the period from January to March, which they then partly cleared after receiving funds for the period from April to June.

Bhumesh Behra, joint secretary dealing with MGNREGA in Orissa, also confirmed this.

“When the funds are released, they will get over in two or three days because of our liabilities,” he said. “We have given a petition to the government to release more funds. It is entirely up to the discretion of the government of India whether to release these funds. We have no say in this, so I cannot comment further.”

Labour-material ratio

The cap on spending would also affect another proposed change: the ratio spent on labour to material.

MGNREGA as it stands now requires that not more than 40% of the allocated funds should be spent on acquiring materials for projects. The remaining amount is to be spent on wages, thus ensuring that the act’s purpose of actually employing people is fulfilled.

The NDA government now wants to tweak that figure, raising the percentage spent on materials from 40% to 49% of its total expenditure. This, the government says, will permit it to use MGNREGA to build longer-lasting infrastructure projects.

However, a senior government official at the rural development ministry expressed doubts about the proposal.

“The proposal to change this ratio to 51:49 and make it applicable at the district level, though is legally and technically possible, runs contrary to the spirit of the Act, which has been made for creating employment opportunities for the unskilled workers who face considerable vulnerabilities during the lean agriculture season,” he wrote in an internal memo, a copy of which has been accessed by

With the cap on spending, states will be able to employ fewer people overall, even as it is able to spend more on materials.

Rural Development Minister Nitin Gadkari overruled this objection saying that the proposed change was supported by a majority of legislators who reflected the will of the house.

Correction and clarification (October 15, 9.45 pm): This piece has been edited to correct the budgeted amount for MGNREGA in 2013-'14. It had been misstated to be Rs 66,000 crore instead of Rs 33,000 crore. The former amount refers to the total estimate of required wages of all states in 2014-'15.