MGNREGS funding likely to remain unchanged in FY26 amid rural recovery

New Delhi: The Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS), a vital safety net for the rural poor, is unlikely to receive increased funding in the FY26 budget. Allocations are likely to remain at FY25 levels, reflecting the government’s confidence in a recovering rural economy, two people aware of the matter said.

However, funding adjustments could be considered mid-year if severe disruptions, such as significant rural distress arise, the people mentioned above said requesting anonymity.

Also read |  MGNREGS unlikely to see higher allocations in FY25 on hopes of rural recovery

The scheme's funding, closely tied to India's rural economic health, saw a spike in FY24 when economic challenges led to higher demand for work.

While ₹60,000 crore was initially budgeted for FY24, the government had to seek an additional ₹14,524 crore in supplementary grants, raising the total allocation to ₹74,524 crore.

Steady funding

In contrast, FY25 funding has remained steady at ₹86,000 crore, with spending unlikely to exceed this amount due to a fall in rural job demand.

"The MGNREGS spending is unlikely to overshoot the budgeted limit in FY25 as better monsoons and improved agricultural performance have reduced rural distress, subsequently lowering demand for MGNREGS work," the first person mentioned above said.

"Subsequently, the allocations for MGNREGS in the upcoming budget are likely to remain at the levels maintained in FY25," the first person mentioned above added.

Data from the ministry of rural development shows a consistent decline in job demand under MGNREGS over the past year.

Also read |  MGNREGS work demand falls in FY25 as spending slows and rains lash

In October 2024, 16.97 million households sought work under the scheme, a 7.6% drop from the same period last year.

Moreover, the average number of employment days provided per household under the scheme has fallen sharply to 38.48 days in FY25 (as of 25 November), compared to 52.08 days in FY24.

This decline coincides with a broader rural recovery driven by robust monsoons and increased agricultural activity.

Experts pointed to reduced government spending during the first quarter of FY25, largely due to the general elections, which temporarily halted state-backed activities such as rural housing construction.

Wage employment guarantee

MGNREGS guarantees 100 days of wage employment per year to poor rural households.

Demand for these jobs typically rises during periods of economic distress, serving as a barometer of rural economic health.

Days under the scheme usually increase when the overall rural economy is weak and people are out of work.

However, with the rural economy showing signs of resilience, the government appears focused on maintaining fiscal discipline.

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Experts said MGNREGS acts as an automatic stabilizer, providing jobs as a last resort when demand exceeds supply and allowing people to opt for market jobs when supply surpasses demand.

"It all depends on requirements at the rural level. There is always scope to enhance the allocations later under additional demand for grants after knowing the requirement at the ground level," said Bhanumurthy N.R., director, Madras School of Economics.

"There is a clear indication that rural consumption has increased for various reasons, particularly in state government expenditure, cash transfer schemes., etc. Non-farm activity has also picked up," he added.

Spokespersons for the ministries of finance and rural development did not respond to emailed queries.