The Central government may have to increase its allocation towards Mahatma Gandhi National Rural Employment Guarantee (MGNREG or MGNREGA) Scheme in the range of ₹20,000 crore to ₹30,000 crore in FY23 as recovery in India’s labour market continues to be weak, says a research report by broking firm Motilal Oswal.

The overall decline seen in the demand under MGNREG seems to be more linked with cyclical factors, which are likely to reverse in the coming weeks. If so, it is difficult to argue that India’s labor market has improved substantially in FY23, it said. “There is no doubt that a section of workers has moved back to urban areas; however, the pace of normalisation is more gradual than expected, reflecting continued weakness or slow improvement in the labour market,” the report says.

The Motilal Oswal analysis shows employment demanded under MGNREG in Q1 FY23 was only slightly lower than in Q1 FY22 (that witnessed the second wave of COVID-19); however, it fell by as much as 38% YoY in Q2 FY23.

“Only 21.5 million workers per month demanded work under MGNREG in Q2 FY23, compared to 40mn/35mn in Q1 FY23/Q2 FY22 and 20 million in the corresponding quarter in the pre-COVID period (FY18-FY20). Lower work demand under MGNREG in Q2 FY23 could be either due to the structural factors reflecting improving labor market, leading to a reversal in the reverse migration or the cyclical factors such as sowing season or a combination of both,” it observed.

The report looked at the monthly % changes during July-September month and found that a comparison of July-September’22 vis-à-vis pre-COVID period (3- or 5-year averages) suggests that while work demand fell faster in Jul’22, it declined at a slower pace in Aug’22, probably due to the base effect. Notably and worryingly though, MGNREG demand increased 5% month-on-month in Sep’22, compared to an average contraction of 8.4% in the pre-COVID period, it said.

The report also says the daily employment demand in the first 17 days of Oct’22 has risen sharply vis-à-vis Q2 FY23. The total employment under MGNREG stood at 68.2 million as of 14th Oct’22, implying that monthly employment in H1 FY23 was closer to 11 million individuals per month, much higher than from the monthly average of 9 million persons in FY21/FY22, it said.

The report also analyses MGNREG financial statement to point out that there is a shortfall (the difference between total fund availability and actual expenditure) of ₹4,400 crore for all states as of 17th Oct, 2022. Since the government has already released about 72% of its full-year budgeted allocation, it may have to allocate additional funds in the range of ₹20,000 crore to ₹30,000 crore under MGNREG in FY23.

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