Work demanded under the Mahatma Gandhi National Rural Employment Guarantee (MGNREG) scheme in November 2021, at 1.8 times the pre-Covid trends, is a clear sign of continued stress in India’s labour market, according to report by Motilal Oswal Financial Services (MOFSL).

The report “EcoScope” emphasised that the buoyant economic recovery is yet to spill over to the labour market.

“This confirms the gradual pace of reversal in the reverse migration that occurred in the wake of Covid-19.

“Migrant workers, thus, are yet to feel confident enough to move back to urban centers,” MOFSL Research Analysts Nikhil Gupta and Yaswi Agarwal said.

The work demanded under MGNREG scheme (MGNREGS) in November 2021 was more than 90 per cent of the work demanded in November 2020, they said.

The report assessed that as many as 11.2 crore people (93 lakh workers per month) were employed under MGNREGS in FY21 (up 42 per cent during the year) as the rural workforce moved from the workplace (in urban centers) to the homeland (also called ‘reverse migration’).

In the first eight months of FY22 (April–November 2021), as many as 1.12 crore people per month worked under MGNREGS, implying further growth of 20 per cent.

Share of young workforce up

The report noted that the share of the young workforce (aged below 30 years) under the MGNREGS has increased sharply, reversing the trends seen during the pre-Covid period.

Over April–November 2021, as many as 12 per cent of the total workers under MGNREGS belonged to the 18–30 years age group (the highest level in eight years), compared with the lows of just 7.3 per cent in FY19, it added.

The analysts observed that since MGNREGS is a demand-driven programme, higher (lower) demand is a good indicator of the stress (buoyancy) in the labour market.

“Interestingly, the ratio of work demanded to provided under MGNREGS declined to record lows of 61.5 per cent in November 2021 vis-à-vis the long-term average of 85 per cent.

“Thus, it is not surprising that the Union government has sought additional spending of ₹22,000 crore under MGNREGS in FY22. The ratio would likely improve from December 2021,” they said.

Labour shortages

The analysts said although MGNREGS serves the useful purpose of providing work in rural areas, recent trends confirm numerous economic implications.

“First, such a high level of work demanded under MGNREGS suggests labour shortages may remain a concern in urban centres. Second, while MGNREGS provides an avenue of casual employment (under the usual status) for rural society, it hurts national productivity due to lower efficiency,” opined the analysts.

With a daily wage rate of ₹210 per person and average days of employment provided per household at about 50, the deployment of such a large workforce under MGNREGS is unlikely to signal to wage inflation risks in the country, the report said.