Why in News?

The Union Finance Ministry has, for the first time, capped MGNREGS spending at 60% of its annual budget for the first half of FY 2025-26.

Previously exempt due to its demand-driven nature, the scheme has now been brought under the Monthly/Quarterly Expenditure Plan (MEP/QEP), a spending control mechanism introduced in 2017.

       MEP/QEP is a financial tool used by government ministries and departments to track and manage their spending against allocated budgets. It helps in forecasting cash flow, monitoring expenditure, and ensuring that spending aligns with budgetary provisions.

What’s in Today’s Article?

• Finance Ministry’s Rationale Behind MGNREGS Spending Cap
• Key Issues with MGNREGS Spending Cap
• Lack of Clarity and Legal Risks in MGNREGS Spending Cap

Finance Ministry’s Rationale Behind MGNREGS Spending Cap

• Chronic Budget Overruns
  • Historically, over 70% of the MGNREGS budget gets exhausted by September, prompting supplementary allocations in December, which are usually depleted by January.
• Mounting Pending Dues
  • In the past five years, year-end pending dues have ranged between ₹15,000 crore and ₹25,000 crore.
  • On average, 20% of the next year’s budget goes toward clearing these dues.
• Objective of the Spending Cap
  • The Finance Ministry aims to regulate cash flow through the MEP/QEP mechanism to prevent early exhaustion of funds and avoid mid-year supplementary allocations.
• Current Financial Snapshot (FY 2025-26)
  • Budget: ₹86,000 crore
  • Released so far: 28%
  • Pending dues from FY 25: ₹19,200 crore
  • Pending dues from FY 26 (as on June 12): ₹3,262 crore

Key Issues with MGNREGS Spending Cap

• Fluctuating Rural Work Demand Ignored
  • MGNREGS demand varies due to agricultural cycles and weather. Work peaks in April–June and post-Kharif in September.
  • However, climate anomalies—like delayed rains or droughts—can increase demand unpredictably.
  • Example: In 2023, low rainfall caused a 20% spike in demand in July–August.
    • Karnataka spent over 70% of its budget within six months due to severe drought.
  • The fixed expenditure cap fails to account for such contingencies, undermining the scheme’s role as a rural safety net.
• Legal Concerns over Statutory Rights
  • MGNREGS is not a discretionary welfare scheme; it is backed by law (MGNREG Act, 2005) and guarantees employment as a legal right.
  • Unlike schemes such as PM-KISAN, which can be altered by governments, rights-based programmes limit executive discretion.
  • Capping expenditure limits the state's ability to honour a legal guarantee of work on demand, violating the core mandate of the Act.
• Constitutional and Judicial Safeguards
  • Courts have consistently held that financial constraints cannot be used to justify non-fulfilment of statutory or constitutional obligations.
  • Key judgments:
    • Swaraj Abhiyan v Union of India (2016)
    • Municipal Council, Ratlam v Vardhichand (1980)
    • Paschim Banga Khet Mazdoor Samity v State of W.B. (1996)
  • These rulings reinforce the principle that the government cannot evade its duties—especially in welfare laws—on the grounds of budgetary limitations.

Lack of Clarity and Legal Risks in MGNREGS Spending Cap

• No Clarity Post-Spending Cap
  • The government has not specified what will happen once the 60% ceiling is reached. This creates two problematic possibilities:
    • States may deny employment despite genuine demand.
    • Workers may continue working but face indefinite wage delays.
    • Both scenarios risk violating statutory provisions of the MGNREG Act.
• Violation of Legal Entitlements
  • The cap risks breaching key rights under the law:
    • Section 3: Right to employment within 15 days of demand.
    • Schedule II, Para 29: Right to receive wages within 15 days of work completion.
• Ongoing Issues Already Exist
• Wage delays, non-payment of unemployment allowance, and inadequate compensation for delays are already common in MGNREGS.
• The Supreme Court has noted these systemic failures.
• The spending cap may worsen these problems rather than resolve them.
• Undermining the Act’s Purpose
  • While aiming to manage fiscal pressure, the Finance Ministry’s move weakens the core intent of the MGNREG Act — to provide timely, legally guaranteed employment and payment during rural distress.