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

Indian Express

15-06-2025

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