The Modi government is looking to boost rural consumption with record outlay for employment scheme

The Modi government is looking to boost rural consumption with record outlay for employment scheme

  • The government is increasing the annual funding for the MGNREGA scheme by 11% to ₹610.8 billion.
  • The scheme has been suffering from a funding crunch for the past few years, which has caused payment delays.
  • The Modi administration is trying to curry favour from rural Indian voters ahead of general elections.

The Indian government announced on January 15 that it was increasing funding for the previous administration’s flagship employment scheme, the Mahatma Gandhi National Rural Employment Guarantee (MGNREGA) programme,in its upcoming interim budget. This is a response to a petition from over 250 activists, lawmakers and farmers rights leaders complaining of the programme’s inadequate funding.

The move is an attempt to sustain rural consumption, which has been falling as of late amid low food prices, which has translated into a decline in rural income. In fact, two-wheeler sales, which are often used a proxy for rural demand, have been on a downward trend for most of a year before rebounding in December owing to discounts from bike manufacturers and lower fuel prices.

A necessary hike

Established through an act in 2005, the scheme aims to provide a minimum of 100 days of paid employment in a financial year to every member of rural household. The work entailed is usually manual work like construction.


The Modi administration, acting through the Ministry of Rural Development, is allocating an additional ₹60.84 billion to the programme, taking its total funding for 2019-2020 to ₹610.84 billion - the highest ever annual allocation for the programme since its inception. In the previous Union Budget, Finance Minister Arun Jaitley had hiked the annual spend for the programme by 15% to ₹55 billion.

The higher funding is necessary. The MGNREGA has been suffering from a funding crunch since 2017-18 as state governments have not received additional sanctions from the central government, which has been dealing with a fiscal crisis of its own. For example, nearly 100% of the funding for the scheme was exhausted by the beginning the January 2019, with three months left to go.

Despite the funding crunch, which has manifested in payment delays and an insufficient compensation rate, the programme has managed to provide a cumulative total of 2.36 billion working days to beneficiaries on an annual basis in the last three years.

The decision to increase funding for the programme comes as part of the government’s attempts to alleviate rural distress ahead of general elections in May. The scheme has gained popularity in the rural heartland in the last few years as it has provided indebted farmers an alternative source of income, which caused the BJP to backtrack from its criticism of the programme and double down on it starting in 2016.

Aside from this, the Modi administration is already said to be preparing a generous package of interest-free loans and income support schemes for smallholder farmers in its upcoming Budget.


Interest-free loans and income support— the upcoming Budget may be a song for India’s farmers

Nearly 90% of rural homes in India have savings accounts in banks: Report