Message from MGNREGA | Business Standard Editorials

Low-skill manufacturing jobs needed to sustain economic growth

The economic impact of the pandemic and the ongoing recovery have exacerbated the duality in the Indian economy. While India is celebrating the success of technology-driven start-ups, a large number of small and medium enterprises in the unorganised sector are said to have suffered significantly because of the pandemic. While the number of firms commanding a billion dollar-plus valuation is expanding rapidly, boosting the net worth of the founders and investors, the level of poverty in India is estimated to have gone up for the first time in decades. The dichotomy is also clearly visible in the job market. Firms in the technology sector, for example, are facing higher attrition and increasing hiring, while job prospects for those with lower skills remain weak. This is also reflected in the demand for work under the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA).

The latest data shows that the scheme has exhausted its budget for the year, and experts argue that the government will have to significantly increase allocation. The government had allocated Rs 73,000 crore for the current fiscal year, compared to about Rs 1.1 trillion last year. As a recent report in this newspaper showed, payments of over Rs 8,800 crore are pending in 22 states and Union Territories. Activists working in this area argue that the government will need to allocate an additional Rs 50,000 crore to meet the demand for work under the scheme, which is expected to go up in the last quarter of the fiscal year. A higher allocation would be necessary because the current year’s allocation also has to account for last year’s shortfall.

There could be multiple reasons for sustained higher demand for work under the MGNREGA. It is likely that a large number of migrant workers who went back to their villages last year have not returned because of pandemic-related uncertainties. Besides, this could be reflecting the decline in non-farm activity in rural areas, which is affecting employment. The government would do well to factor in these numbers, both in its short- and medium-term policy responses. In the immediate short run, the government should fund the employment guarantee scheme to the extent required. This should not be a problem, given the government’s strong revenue position. It’s also necessary to support households at the bottom of the income pyramid. However, funding the job guarantee scheme will not solve the problem permanently.

The pressure on the scheme, to be sure, may come down in the coming quarters with economic recovery, but the increasing duality in the economy will need greater policy attention. India is not creating enough jobs in the labour-intensive sectors. It is important to note that the demand under the MGNREGA doesn’t fully reflect the state of the job market because no such option is available to the urban poor. The boom in tech and tech-enabled businesses is a welcome development, but it alone will not be able to drive and sustain economic growth. India needs to create low-skill manufacturing jobs to be able to generate and sustain higher growth in the medium term. Since the pandemic has exacerbated the economic divide, the issue of job creation will need more policy attention than ever. This will be necessary not only for higher economic growth but also to maintain social harmony.

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