India Economy Watch – Decline in MGNREG labor demand may be cyclical in nature: Motilal Oswal


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One of the biggest fallouts from the first wave of the Covid-19 pandemic was the mass exodus of casual urban workers to their home countries. The lack of jobs in urban areas has led to an increase in job demand under the Mahatma Gandhi National Rural Employment Guarantee program, leading to a 41.9% year-on-year growth in monthly employment over the past year. FY21, followed by 34.6% growth in FY22 over FY20 levels.

The average daily wage in FY21/22 was only Rs 219/216 per person. Such a high demand for employment under the MGNREG despite a derisory salary indicated enormous stress in the Indian labor market.

In this note, we update our analysis with data from H1 FY23 (through October 14, 2022) and make a few observations.

First, in-demand employment under MGNREG in the first quarter of FY23 was only slightly lower than in the first quarter of FY22 (which saw the second wave of Covid-19); however, it fell 38% YoY in Q2 FY23. Only 21.5 million workers per month applied for work under MGNREG in Q2 FY23, compared to 40 million/35 million in Q1 FY23/Q2 FY22 and 20 million in the corresponding quarter of the pre-Covid period (FY18-FY20 ).

The decline in labor demand under the MGNREG in the second quarter of FY23 could be due either to structural factors reflecting the improvement in the labor market, resulting in a reversal of reverse migration, or to cyclical factors such as planting season or a combination of both.

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