MGNREGA and agriculture amid the pandemic

The adverse impact of COVID-19 on rural areas is much lower than urban areas. There are also reports that rural economy is reviving after lockdown. It is true that the only saving grace for the Indian economy now is the performance of agricultural sector. In FY 21, agricultural GDP is expected to grow at 2.5 to 3 per cent although GDP for the overall economy may contract by 5 to 8 per cent, writes S. Mahendra Dev Vice Chancellor, IGIDR, Mumbai.

New Delhi: This independence day will be quite unusual for India. The coronavirus is still spreading in the country. Similar to rest of the world, the pandemic affected both lives and livelihoods.

The economic shock is much more severe in India, for two reasons. First, the economy in pre-covid-19 was already slowing down from 8.1% in Q4 of 2017-18 to 3.1% in Q4 of 2019-20 compounding existing problems of unemployment, low incomes, rural distress, and widespread inequality. Second, India’s large informal sector is particularly vulnerable.

There has been an unprecedented shock to the labour market due to the pandemic. The lockdown has choked almost all economic activity. But the worst affected are the bottom of the pyramid particularly the migrants workers. The pandemic has led to widespread losses in jobs and incomes for informal workers. Unemployment has increased from 8.4% in March to 27% in April and May, 2020. There was a loss of 122 million jobs. Out of that, the small traders and casual labourers (daily wage labourers) lost 91 million jobs.

The unlock process since June in several parts of the country improved the economy and livelihoods to some extent but some other parts of India are still under lockdown. The duration and spread of the pandemic is still uncertain. The performance of rural economy is important as around 70 per cent of the total population and workforce reside in rural areas. Increase in their purchasing power is crucial for creating demand for goods and services of the entire economy.

The adverse impact of Covid-19 on rural areas is much lower than urban areas. There are also reports that rural economy is reviving after lockdown. It is true that the only saving grace for the Indian economy now is the performance of agricultural sector. In FY 21, agricultural GDP is expected to grow at 2.5 to 3 per cent although GDP for the overall economy may contract by 5 to 8 per cent. India is likely to have bumper crop in both Kharif and Rabi seasons due to normal monsoon. However, bumper crops can lead to fall in farm prices. Supply chain problems have to be solved for getting higher prices for farmers.

Moreover, agriculture sector is only one part of the story in rural areas. The non-farm sector has been increasing over time. The demand for FMCG, tractors and two wheelers rose in rural areas. However, this rural revival is overstated as it is a pent up demand after full lockdown. This demand may not be sustainable over time due to low remittances, low rural wages and incomes.

Around 40 to 50 million migrants have gone back to rural areas as part of the reverse migration. Employment has to be provided to these migrants and other rural workers. Public works can be used as a safety net for workers. In India, from the fourth Century BC when the ancient Indian political economist, Kautilya, wrote his Arthasastra, there has been emphasis on public relief works. Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGA) can be a saviour for these workers during the Covid-19 period. MGNREGA also has secondary benefits such as creation of assets for agriculture and rural development; more participation of women; helping the marginalized sections; reducing distress migration; involvement of panchayats etc. A study done by the Indira Gandhi Institute of Development Research on assets created in Maharashtra shows 87% of the works exist and function and over 75% of these are directly or indirectly related to agriculture under NREGA. An overwhelming 90% of respondents considered the works very useful or somewhat useful.

The demand for MGNREGA soars in recent months amidst lockdown and job losses. Nearly 170 crore person days were created during April to 1st week of August, 2020 as compared to the 265 crores created in the entire year of 2019-20. In other words, around 64% of the last year person days were created in just few months this year because of demand. In the last 3 and half months, Telangana and Andhra Pradesh generated 106% and 96% mandays respectively as compared to the work done in 365 days in 2019-20. The progress of NREGA has repeatedly confirmed that villagers have been flocking to the scheme due to absence of work avenues. Around 4.8 lakh households have already completed 100 days of work under the scheme till now. The total expenditure under MGNREGA this year so far is around Rs. 48,000 crore which is nearly half of the total Rs. 1 lakh crore allocated for the FY21.

But, there seems to be a problem regarding MGNREGA works. While briefing the Parliamentary Standing Committee on labour, an official from rural development Ministry said that we are left with very less money under MGNREGA for the current financial year. A survey by Azim Premiji Foundation found that a large number of gram panchayats in the country have already exhausted the funds allocated them under MGNREGA. The shelf of projects in panchayats will likely to end by August 2020. The Foundation survey says that the demand for work under MGNREGA will remain very high at least till the end of FY 21 although the demand may be slightly less during kharif season. It recommended that the allocation under the scheme should be further raised by another Rs. 1 lakh crore to a total of Rs. 2 lakh crore and suggested that the number of days should be increased to 200 days per household.

In order to provide livelihood and income support for workers, a study by C. Rangarajan, former RBI Governor and the present author suggested increase in the number of days of employment to 150 days under MGNREGA. This study also suggests introduction of employment guarantee scheme in urban areas. The design can be slightly different from the MGNREGA. In urban areas, employment can be provided to both unskilled and semi-skilled workers as there is demand for the latter workers also. The proposed additional expenditure for 150 days of employment in both rural and urban areas would be Rs. 2.48 lakh crores (1.22% of GDP). The government has to provide fiscal space for spending on employment guarantee scheme in both rural and urban areas.

Urgently, a quick process of creating further shelf of projects by Gram Panchayats in several states is needed. State governments should ensure that public works are opened in every village. There should be coordination between Central government and state governments. State governments had begun implementing the scheme like a supply-driven scheme. It should run like a demand-based guarantee backed by law.

The entire nation saw how migrant workers walked thousands of kilometers to reach their villages. There is a demand for MGNREGA from these migrants including skilled workers like laid-off auto workers, car drivers, painters, carpenters. For them semi-skilled and skilled work may have to be provided. The country also saw many migrants started working as MGNREGA labourers amid the pandemic. It underlines the importance of MGNREGA as a ray of hope for jobless migrants and other workers amidst extreme distress.

Apart from strengthening MGNREGA, some other measures are required for agriculture and rural revival. First, farmers’ incomes have to be raised. Rise in MSP may be necessary but revival of supply chains is needed for ensuring higher prices. The agriculture marketing reforms announced in Atmanirbhar help in the medium term. However, the government has to provide more clarity on these reforms including the centre-state coordination.

Second, agriculture exports have to be promoted. There is a need for a long-term consistent policy on exports and futures markets. Atmanirbhar means we have to be self-confident. India processes very limited quantities of fruits and vegetables. It should promote food processing in a big way.

Third, recently, the Prime Minister launched Rs. 1 lakh crore agriculture infrastructure fund. But, the Centre targets to disburse the entire amount in four years. Only Rs. 10,000 has been sanctioned for this fiscal year. Investing in rural infrastructure is essential for raising employment and wages. We have to go beyond farming and invest in warehousing, logistics, processing and retailing. The agriculture infrastructure fund would be useful to promote value chains. This will give better incomes for farmers. Similarly, rural construction is very important for employment creation and enhancing rural wages. During 2004-05 and 2011-12, construction played an important role in raising wages of rural workers.

Fourth, around 51 per cent of MSMEs are in rural areas. Covid-19 is a big shock for MSMEs as they were already suffering from earlier shocks including problems of NBFCs. MSMEs have to be revived in rural areas also. There are also opportunities in the space vacated by China. India can’t become Atmanirbhar without dynamic MSMEs.

Lastly, agriculture and non-agriculture linkages, rural-urban connection are also important for rural revival. Similarly, urban fiscal stimulus, solving the twin balance sheet problem of corporate sector and banks would help rural areas also because of rural-urban linkages.

To conclude, since the adverse impact of the Covid-19 pandemic on employment is going to persist in 2020-21, MGNREGA seems to be the best possible solution for many problems. Government should ensure more allocations of funds, increase in the shelf of projects at ground level and effective implementation. MGNREGA is the savior for employment for migrant and other rural workers. Similarly, as manufacturing and services are in doldrums, agriculture sector seems to be the saving grace for the country’s economy.

(Written by S. Mahendra Dev, Vice Chancellor, Indira Gandhi Institute of Development Research, Mumbai)