Rural distress deepens as MGNREGA job demand grows, funding shortfall leads to Rs 21,304 crore in unpaid dues

By: Shantanu Bhattacharji

The Centre may require mid-year fund infusions to clear dues and prevent FY26 disruptions. Improved demand forecasting and digitised transfers could alleviate fiscal pressures, but persistent deficits may curtail state projects.

The Mahatma Gandhi National Rural Employment Guarantee scheme (MGNREGA), the country’s flagship rural employment programme, ended FY25 with a Rs 29,440 crore deficit, exposing funding shortfalls that risk delaying payments and reducing workdays. Demand for jobs under the scheme rose by 2.1 per cent in March 2025 compared to the previous year, indicating continued rural distress. Yet, available funds (Rs 96,000 crore) fell short of total expenditure (Rs 125,219 crore), leading to unpaid dues of Rs 21,304 crore, with 91 per cent linked to material costs and wage arrears at Rs 968 crore.

The financial strain is particularly severe in Uttar Pradesh (Rs 4,314 crore), Maharashtra (Rs 3,691 crore), and Bihar (Rs 3,625 crore), among others. Despite the scheme’s mandate to provide 100 days of work per household, the average in FY25 was only 50 days, highlighting a widening gap between policy intent and execution. Experts point to March-end fund clearance delays as a factor, but persistent deficits suggest broader structural inefficiencies in fund allocation.

The Centre may need mid-year fund infusions to clear dues and prevent further disruptions in FY26. A potential solution lies in better forecasting of demand and digitised fund transfers to avoid last-minute fiscal pressures. However, if deficits persist, states may be forced to scale back projects, hurting rural employment, infrastructure creation, and income security. With rising job demand and fiscal constraints, MGNREGA risks becoming an underfunded safety net rather than a robust employment generator.

Worth considering here is that the rural jobs scheme is once again at the centre of a funding crunch, as demand for work exceeds budgeted allocations. The rural development ministry has sought additional funds under the second batch of supplementary grants for FY25, according to media reports. If approved, the extra funding could help clear unpaid dues and prevent further disruptions.

However, the issue runs deeper than just a short-term cash shortfall. The persistent mismatch between allocated funds and actual demand signals the need for structural reforms in how MGNREGS is financed. Despite India’s broader economic growth, rural job demand remains stubbornly high, underscoring rural distress and weak non-farm employment opportunities.

The finance ministry is navigating a delicate fiscal balancing act as it evaluates additional funding for MGNREGS while staying committed to its 4.8 per cent fiscal deficit target for FY25. A higher-than-expected nominal GDP growth rate of 9.9 per cent has provided some fiscal room—around Rs 20,000 crore in additional spending capacity.

Analysts say the government may resort to targeted allocations rather than a blanket increase in spending. If MGNREGS funding is partially met through reallocated savings, it could prevent an outright fiscal expansion while maintaining rural employment support.

The allocation for MGNREGA remains stagnant for 2025-26, casting doubt on its ability to meet demand. The budget has committed Rs 86,000 crore to the rural job scheme, maintaining the same funding level as the previous fiscal year.

State governments have admitted to delays in processing over 49 lakh wage claims under the 100-day rural job scheme, with payments lagging beyond the mandated 15-day window from the completion of work. In a response to a question in the Rajya Sabha on last month, Rural Development Minister Kamlesh Paswan revealed the figures, underscoring the financial strain experienced by impoverished rural workers due to the delays.

Under the rural job scheme, each rural family is entitled to 100 days of employment annually, with wages due within 15 days of work completion. If payments are delayed beyond this period, a compensation provision mandates 0.05 per cent of the unpaid wages per day for each additional day of delay, starting from the 16th day after the muster roll is closed.