Second wave impact sends MGNREGA demand zooming again

NEW DELHI: The government's flagship rural employment guarantee scheme, which has helped haul up rural wages and neutralise lockdown-induced consumption shock during the pandemic year, is being put to the test again as the second Covid wave washes over the hinterlands.

Having acted as a saviour for many who lost regular work during the peak months of the first wave and its aftermath, demand for work under the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) had fallen in March. April and May, however, have seen a rise in this figure with 3.52 crore and 3.61 crore individuals, respectively, demanding work under the scheme. Those demanding MGNREGA work had declined from 3.65 crore in February to 3.36 crore in March, indicating that workers were finding employment in a recovering economy. Lockdowns enforced to contain the second wave have revered this trend. While April has seen a sharp 98 per cent rise year-on-year, May figures were lower than during May 2020 (4.8 crore), when the most stringent national lockdown had been in effect, data from the MGNREGA portal showed.

While a substantial number of people seek work under the scheme, there is a large demand-supply gap. In May, employment was provided to 1.6 crore households while 2.5 crore had demanded work. During the same month of the previous year, employment was provided to 3.04 crore households while 3.43 crore had demanded work.

A rising trend in demand for rural employment is also an indicator of reverse migration and proportionate labour shortages in industrial units, both in organised and small-scale sectors.

Economists say that while the heavy lifting was being done by the rural economy to put the economy back on track last year, this was due to the front-loading of government expenditure, a favourable start to the monsoon, an early onset of the summer sowing season, and rural wages touching a record high under MGNREGA. 

But this year could be different.

"Covid 1.0 was largely an urban phenomenon, despite the large-scale reverse labour migration. What saved the rural areas during the first wave was the timely arrangements the state governments had put up to quarantine migrant labourers before letting them enter their homes and intermingle with the local population. This prevented the spread of the virus in rural areas, therefore production activities and, in turn, rural consumption largely remained unimpacted," explained Sunil Kumar Sinha, principal economist, Ind-Ra.

This time, even if agricultural income remains intact, there is a strong likelihood that the expenditure behaviour of rural households will not be the same as during FY21. The slowdown in non-agricultural activities will have a serious impact on rural demand, since non-agricultural income constitutes nearly two-thirds of rural income.

Further, if they are forced to take on debt to meet out-of-pocket health expenses, it can be more damaging than other types of household debt. "Even the employment offered under MGNREGA may be less effective, if family breadwinners fall to Covid. Focus has to be on strengthening the ongoing vaccination drive," Sinha said. 

In such a scenario, households would curtail non-essential expenditure, he noted, and demand for FMCG products, automobiles (especially tractors), and two-wheelers will continue to suffer.

According to Sonal Verma and Aurodeep Nandi, economists at Nomura, hiring has increased under the rural guarantee scheme but it provides only subsistence wages. 

The real rural wage growth has averaged near zero in FY21.