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

 

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.