Explained: Centre's rationale behind MGNREGS spending cap, the problems with it

Second byline: Purbayan Chakraborty
The Union Finance Ministry has capped spending under the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) at 60% of its annual allocation for the first half of Financial Year (FY) 2025-26. There was no such spending limit until now.
The programme has been brought under the Monthly Expenditure Plan/Quarterly Expenditure Plan (MEP/QEP), a spending control mechanism introduced by the Finance Ministry in 2017. MGNREGS, which provides up to 100 days of employment to any rural household on demand, was thus far exempt from MEP/QEP on account of being demand-driven.
Civil society groups and MGNREGS worker unions have raised concerns about the move. Here's why.
Finance Ministry's rationale
MGNREGS has long been plagued with financial troubles, which are perhaps what the Finance Ministry hopes to address by implementing the MEP/QEP mechanisms.
Data from the Ministry of Rural Development show that over the last few years, more than 70% of the budget is frequently exhausted by September, and while supplementary allocations are often made in December, even these run out by January.
This leaves significant pending dues by the end of the FY — over the last five FYs, pending dues have ranged between Rs 15,000 crore to Rs 25,000 crore. On average, 20% of the subsequent FY's budget is spent in clearing these.
By implementing an expenditure cap, the Finance Ministry is likely ensuring an adequate budget will remain for the latter half of the FY, so that no supplementary allocation will have to be made.
The MGNREGS budget for FY 26 stands at Rs 86,000 crore, and FY 25 ended with pending dues of Rs 21,000 crore. As on June 12, the Centre has released 28% of FY 25-26's budget. Pending dues for FY 26 stand at Rs. 3,262 crore, and for FY 25 at Rs 19,200 crore. Just clearing these dues will exhaust approximately 50% of the budget.
Issue of fluctuating demand
By design, MGNREGS acts as a buffer for rural citizens, especially during times of lean harvests, freak weather events, and rural distress. Work demand under the scheme fluctuates throughout the year due to a number of reasons, primarily agricultural activities and weather patterns.
MGNREGS work demand is highest between April and June, and picks up again after the kharif sowing season in September. But weather abnormalities such as delayed rains can lead to high MGNREGS work demand even in July or August.
In 2023, for instance, low rainfall led to 20% higher work demand than usual in July and August, with Karnataka in particular spending more than 70% of the annual MGNREGS budget within six months due to extreme drought conditions.
The expenditure cap does not take into account these contingencies.
There is a legal issue too.
Social security and welfare in India is implemented either via schemes designed and executed by the government of the day (for instance, PM Kisan Samman Nidhi or the LPG scheme), or through schemes based on specific legislation which establish certain programmes as statutory rights, like MGNREGS (based on MGNREG Act, 2005) or the Public Distribution System (based on National Food Security Act, 2013).
The former can, and often are, altered, discontinued, or repackaged when a new government comes to power. For the latter, while the government does have the power to determine the modalities of implementing legislation, this power is conferred by the legislature and is limited in its scope.
The MGNREGA recognises employment as a statutory right. The Act signified a critical shift from this being a negative right under Article 21 of the Constitution (which mandated that the state must not interfere with your livelihood unreasonably), to a positive statutory obligation on the government to provide employment on demand.
The 60% spending cap ordered by the Finance Ministry makes it virtually impossible to realise an entitlement that is legally guaranteed under the Act once the ceiling is reached.
Constitutional courts have held that financial inability cannot be a reason to disregard statutory or constitutional duties, including in Swaraj Abhiyan v Union of India (2016), Municipal Council, Ratlam vs Shri Vardhichand (1980), and Paschim Banga Khet Mazdoor Samity v State of W.B. (1996).
Lack of clarity
There is currently no clarity on what will happen once the ceiling is reached. States could be forced to deny employment even when there is demand, or workers may have to work without timely payment.
In both scenarios, statutory rights of the workers may be violated — the right to to receive employment within 15 days of raising the demand, as provided under section 3 of the MGNREGA, and the right to receive wages within 15 days of closure of work, as mandated under para 29 of schedule II of Act.
To be sure, wage delays have been rampant in the scheme for years, and unemployment allowances and compensation for delayed payments have gone unpaid or been poorly calculated (as the Supreme Court has observed).
However, the Finance Ministry's decision undermines the letter and spirit of the Act in an attempt to address the financial problems in MGNREGS.
Laavanya Tamang is Senior Researcher with the Foundation for Responsive Governance, and affiliated with the NREGA Sangharsh Morcha.
Purbayan Chakraborty is a Calcutta-based lawyer and works closely with the Paschim Banga Khet Majoor Samity, a trade union representing rural workers in West Bengal.
All data accessed from MGNREGS MIS on June 12

Try Our AI Features

Explore what Daily8 AI can do for you:

Learn with AIFact CheckingText to SpeechAI Summary

Related Articles

The Hindu

25 minutes ago

• The Hindu

K.C. Venugopal calls for climate-responsive approach in NH construction

A Climate-responsive design should be incorporated into national highway construction and a high-level team with technical expertise should review the ongoing works, K.C. Venugopal, MP, has said. Speaking at a meeting of the Alappuzha District Development Coordination and Monitoring Committee to review the progress of Central government-sponsored schemes at the Collectorate conference hall on Saturday, Mr. Venugopal said that proper soil testing should be conducted for national highway construction in the district. He directed the National Highways Authority of India to install proper drainage system, adequate lighting and proper signboards to reduce accidents. 'Immediate steps should be taken to address waterlogging along the roadside. Measures should also be taken to expedite the strengthening of parallel roads to the Aroor–Thuravoor stretch of National Highway 66,' the Alappuzha MP said. He said the Aroor-Thuravoor stretch was experiencing traffic blocks lasting up to four hours. 'Authorities should not continue to test the public's patience. The project should proceed only after ensuring safety and taking into account the difficulties faced by daily commuters and residents living along the highway,' the MP said. Mr. Venugopal directed officials to initiate steps to resolve drinking issues in the district. He reviewed the implementation of the Jal Jeevan Mission. Delays in providing new connections under the scheme are unacceptable, he said. The MP stressed the need to ensure the safety of food served in schools and anganwadis. 'Counselling facilities should be made available to students in all schools. For this, a dedicated room must be set up, and confidentiality should be maintained,' he said. The meeting observed that Alappuzha has made significant progress in implementing the Mahatma Gandhi National Rural Employment Guarantee Scheme. Around ₹440 crore is disbursed annually as wages through the scheme in the district. 'There is no other scheme as effective in addressing unemployment. Its benefits should be fully utilised,' Mr. Venugopal said. The meeting discussed 68 schemes being implemented by 26 Central government departments. District Collector Alex Varghese, Alappuzha municipal chairperson K.K. Jayamma and others attended the meeting.

Business Standard

30 minutes ago

• Business Standard

Bengal may lose ₹25 cr GST as SBI shifts key unit from Kolkata to Mumbai

Kolkata faces a potential state GST loss of nearly Rs 25 crore this fiscal year as the State Bank of India (SBI) moves to relocate its Global Market Unit (GMU) from Kolkata to Mumbai, a civil society organisation has claimed. This proposed shift has drawn protests from civil society groups like Bank Bachao Desh Bachao Manch (Save Bank, Save Nation Platform), describing SBI's decision as "arbitrary and opaque". "The GMU and associated units contribute significantly to state revenues via GST, nearly Rs 25 crore this fiscal year. Additionally, over 70 contractual staff stand to lose their jobs," Bank Bachao Desh Bachao Manch joint convenors Biswaranjan Ray and Soumya Datta said in a complaint. The State Bank of India recently stated that decisions regarding the opening, shifting, or rationalisation of branches and offices are part of an ongoing business process based on evolving operational and administrative needs. This explanation was provided by the Deputy General Manager (Operations), SBI Corporate Centre, in a letter dated June 11, 2025, which responded to a previous complaint from Bank Bachao Desh Bachao Manch to the President of India in March. The Manch found SBI's reply to be "generic and bureaucratic", and "devoid of substance or justification". The group also noted that it neither addressed the core issues raised nor provided a rationale for the displacement of strategic banking operations. The Manch then complained to the Centralized Public Grievance Redress and Monitoring System (CPGRAMS) under the Department of Administrative Reforms and Public Grievances. Protestors have highlighted several concerns beyond the potential GST loss, including the disregard of historical and legal commitments, specifically a 2008 agreement between the bank and its federations to retain the GMU (which evolved from the erstwhile Foreign Department) in Kolkata. The GMU's shifting is part of a "pattern of systemic marginalisation" of Kolkata's and West Bengal's institutional roles within India's banking landscape, the forum claimed. (Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

United News of India

35 minutes ago

• United News of India

Telangana Dy CM emphasizes boosting non-tax revenue

Hyderabad, June 22 (UN) Telangana Deputy Chief Minister Mallu Bhatti Vikramarka, who chairs the Infrastructure and Capital Sub-Committee, directed officials to give focused attention to increasing the state's non-tax revenue and optimising budgetary allocations. He made these remarks during a high-level review meeting held at the Dr B R Ambedkar Secretariat, attended by Ministers Uttam Kumar Reddy, Komatireddy Venkata Reddy, and senior officials. During the meeting, the Deputy CM emphasised that new welfare schemes worth Rs 33,600 crore are being implemented without halting existing schemes of the previous government. However, he pointed out that no revenue was received from Outer Ring Road or Excise during the 2023–24 financial year, highlighting the need to explore alternate revenue channels, especially non-tax sources and central funds. He instructed officials to rationalize departmental budgets, ensuring equitable distribution of funds. "Some departments are receiving more funds than needed, while others are underfunded. This imbalance must be corrected, and allocations should reflect actual needs and priorities," he stated. Bhatti Vikramarka also ordered the immediate completion of pending major infrastructure projects across all constituencies, stressing that rationalization and the completion of spillover works must be finalised within ten days. He underlined that revenue-generating sectors need special focus, and that all expenditures must be realistic, logical, and need-based. Calling on all departments to work with a public welfare mindset, the Deputy CM said that only balanced departmental development will ensure comprehensive growth for the state. The meeting was attended by Chief Secretary Ramakrishna Rao, Finance Principal Secretary Sandeep Kumar Sultania, and senior officials from various departments, an official statement said on Sunday. UNI VV GNK