Did MNREGA damage Indian agriculture? How did it help Indian economy?

MNREGA increased workers’ wages, consumption and manufacturers and helped revive the Indian economy.

When then Prime Minister Manmohan Singh launched the NREGA scheme in 2005, his main aim was to provide at least a few days’ work to countless unskilled workers. Even the economist and former RBI governor could not fully grasp how this plan could bring about a paradigm shift in welfare economics. The employment scheme changed the entire scope and shifted the concept of welfare from charity to right. Instead of philanthropic aid, it has become a needs-based program that helps the state build infrastructure. MNREGA, as it was called after being renamed, strengthened the rural economy, which increased demand and helped the manufacturing sector. This gave the Indian economy a much-needed boost. This was a truly game-changing development.

Rural employment guarantee India

MNEGA has quietly reshaped rural labor markets, state capacity, and the idea of ​​a legal right to welfare. Its impact was felt across five key economic and institutional dimensions. For the first time, paid employment became a justifiable right, not a discretionary benefit. Rural households had the right to work at least 100 days a year. If the state could not provide this to them, it would have to give them unemployment benefits. Thus, the state was made legally responsible for providing employment and became the employer of last resort.

Impact of MNREGA on agriculture

MNREGA fixed the minimum floor wage, especially for unskilled workers. With 100 days of employment available, workers were no longer forced to accept whatever wages they were offered. Since the program is gender-neutral, it increased women’s participation and helped them become empowered as they earned their own money. As a result, the labor market became less monopolistic and more competitive and the terms of trade improved.

Has MNREGA harmed farmers?

As jobs were offered, migration decreased significantly, especially among tribal communities and people from drought-prone and flood-prone areas. Although migration did not stop completely, it became a matter of choice rather than survival. As a result, it stabilized and reduced the pressure on the urban labor market. It also reduced the rate of urbanization. During the COVID pandemic days, the government increased fund allocation and used MNREGA as a counter-cyclical fiscal instrument.

MNREGA affects Indian Economy

On the other hand, MNREGA hit the agriculture sector, albeit temporarily. It increased the cost of labor and farmers had to work with shrinking margins. Small and marginal farmers were most affected by this situation. However, it is necessary to understand that this plan corrects the distorted labor market. Before the introduction of MNREGA, the agricultural sector was running on hidden unemployment and hardship labour. There was no loss of productivity; there was only redistribution from landowners to agricultural workers.