Explained: What is the caste based payment system in MGNREGA, why is the government junking it?

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A directive by the Centre earlier this year to split the budget for the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) for payment of wages on caste lines has led to community-based tensions among rural Indians who find work manual work under the programme. Moneycontrol explains the government's new caste-based disbursal of wages and the system followed earlier, and why the new payment system is being scrapped.

How does the caste-based wage payment system work?

The government on March 2 this year issued a circular directing the state governments to create three separate Fund Transfer Orders (FTOs) for receiving central funds to disburse MGNREGS workers' wages.

One each is meant for Scheduled Castes (SCs) and Scheduled Tribes (STs) and the third for the "Other" Category.

So instead of the earlier system wherein a single FTO stating how many people had worked under MGNREGS and the wages they should be paid, the government has asked the states to create 3 FTOs for the MGNREGA workers belonging to different castes.

What problem has the new payment system created?

Once the caste-based system was implemented, the payment of wages to workers has been erratic and non-uniform, triggering caste-based tensions among MGNREGA workers.

This has led to workers from one caste receiving wages faster than the other despite workers doing the same work in the same region for the same number of days. MGNREGS assures rural Indians at least 100 days of work a year for at least one member of each household.

An analysis of 1.8 million FTOs between April and September by LibTech India, a team of engineers, social workers and social scientists working to improve public service delivery in India, showed that SC workers were receiving their wages much faster than others.

A report by the Print news website noted that the SC wage payment account in Karnataka received funds six times in August while the ST account received three times and the account for the Other category of MGNREGA workers received funds only twice.

The gap was even more stark in the case of Odisha, Jharkhand and Madhya Pradesh where the funds were transferred within the mandated seven days for half the SC and ST workers; only 7 percent of workers from other categories received the payments.

Research by LibTech India also found out that the government transferred money to 46 percent of SC workers within the seven days of FTO approval; only 26 percent were paid within seven days in the case of non-SC/ST category.

The differential payment system comes when rural India in particular has been severely hit by two consecutive waves of the pandemic, which led to widespread job losses.

What is the government doing to resolve this?

The move to segregate wage payments on caste lines has drawn criticism from several states including Karnataka, Telangana, Andhra Pradesh and Tamil Nadu and they have informed the Centre of rising tensions between communities.

On September 3, the Karnataka government, in a letter, asked the Centre to switch to the single and common FTO system. The letter underscored that “the SC account received funds six times in August. But during the same period, funds have not been received in ST and Others category accounts despite wage demand being generated in all categories”.

The letter noted some operational inconvenience because of certain categories of workers receiving wages ahead of the others.

After complaints from several states, the government is revoking the caste-based payment system, several publications have reported.

The Hindu has reported that, in an order dated November 1, the Ministry of Finance has directed the Ministry of Rural Development to  “revert to the previous system of generating single muster, single FTO ( Fund Transfer Order) and transferring money into a single NeFMS (National Electronic Fund Management System) account.”

The report said that a revised accounting procedure will be implemented in order to capture expenditure under three separate heads for SC, ST and other workers under a single FTO.