MGNREGS Spending Cap: Centre’s Rationale and the Legal Backlash

MGNREGS Spending Cap Latest 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.

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
  • Nearly 50% of the budget may go toward clearing past dues alone.

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.

Source: IE | ET

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