Employment Guarantee on the Block

This article has been cross-posted from its original appearance in the Indian Express (published December 20, 2025).

Please read the open letter to the Indian Government in Support of the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) and add your name to the list of experts calling for the preservation of the NREGA law.

The VB-G RAM G Bill is all set to sink India’s employment guarantee in the guise of revamping it.

Twenty years ago, India acted as a viswaguru (world teacher) of sorts by launching the National Rural Employment Guarantee Act. The idea was not entirely new – Maharashtra had already shown the way with its own employment guarantee scheme from the early 1970s onwards. But NREGA took the idea much further, and became an inspiration for the world.

The Act was the culmination of a year-long process of public deliberation involving social movements, workers’ organisations, the National Advisory Council, the Prime Minister’s Office, several Ministries, and of course the Parliament, including an active Standing Committee chaired by Member of Parliament Kalyan Singh from the Bharatiya Janata Party (BJP). This was a national initiative beyond party lines, with unanimous support in Parliament at decision time.

Six years later, in 2011-12, important evidence emerged that the programme was doing quite well. At that time, MGNREGA (as it was renamed by then) officially generated more than 200 crore person-days of employment per year for 50 million rural households. Nearly half of the workers were women, and more than 40% belonged to a Scheduled Caste or Scheduled Tribe. These official figures were largely corroborated by independent household surveys, including the 68^th Round of the National Sample Survey and especially the second Indian Human Development Survey. Rural wages were rising at an unprecedented rate. Some studies also suggest that MGNREGA, far from displacing productive work, had positive effects on economic efficiency and aggregate output. These achievements built on the energy and enthusiasm of the early years of MGNREGA.

Later on, implementation hurdles and blunders multiplied. Centralization, technocracy, underfunding, delays in wage payments, failure to act on corrupt elements and other problems took a heavy toll. Today, MGNREGA is a pale shadow of its former self, despite a sterling role during the Covid-19 crisis.

Most of the implementation issues can be resolved, but this calls for renewed political commitment to MGNREGA. The VB-G RAM G Bill 2025, rushed through Parliament in the last two days without prior notice, goes the other way: it repeals this historic Act and replaces it with a centrally-sponsored scheme at the discretion of the central government. Under this Bill, the central government has full powers and no serious obligations. All the obligations (providing employment, paying the unemployment allowance, compensating workers for delayed payments, and even ensuring adequate funding) have been palmed off to state governments.

The centre’s discretionary powers begin with the power to decide where and when the scheme is to be implemented. This “switch-off clause” defeats the purpose of employment guarantee. It is like providing a work guarantee without any guarantee that the guarantee applies.

The central government also has discretionary power over financial allocations. Until now, MGNREGA was based on the principle of open-ended funding from the centre. States only had to pay 25% of the material costs (about 10% of total costs). Under the new scheme, the central government is free to set “state-wise normative allocations”. Within those allocations, there will be 60/40 cost-sharing between the centre and states. Beyond that, all the funding is supposed to come from the states.

The risk that the central government will misuse its discretionary powers is not imaginary. We had a taste of it in the last three years with the discontinuation of MGNREGA funding to West Bengal. The reasons for this drastic measure have never been clearly explained by the central government, not even in Parliament. Evidently, the motive is political.

The new financial pattern, like the switch-off clause, pulls the teeth out of MGNREGA. The earlier pattern created a strong incentive for states to implement the scheme. It was a real opportunity for them to do some good work at low cost. The new funding pattern is a huge spanner in that wheel.

Many people fail to realise that the implementation of MGNREGA is driven by a demand for projects as much as (if not more than) by a demand for work. Farmers are keen to build wells and plant orchards, communities demand roads and ponds, people ask for housing – all this helps to activate MGNREGA. State governments easily sanction projects because the costs are mostly borne by the central government. Under the new scheme, state governments will have to pay for 40% if not 100% of the cost of new projects. Quite likely, many of them – especially among the poorer states – will go slow on project sanctions.

The new funding pattern raises another issue. The Bill makes states liable for providing employment (or, failing that, paying the unemployment allowance) without any guarantee of adequate funding. In other words, the centre is imposing a legally-binding financial obligation on the states, without consultation. The states have good reason to oppose this.

These are just some of the major issues with the Bill. Other problems have been aptly exposed by many commentators in the last few days. Some well-meaning economists argue that the Bill will help to ensure that poorer states get a larger share of funds. A much better way of doing this, however, would be to raise MGNREGA wage rates in the poorer states. Introducing cost-sharing is hardly the way to help them.

None of this is to say that MGNREGA is doing fine. The Bill, however, contains very few constructive provisions that might help to address the current implementation issues. If anything, it promotes some hurdles, like counter-productive technology. The only good news is the enhanced norm of 125 days (per household per year) for guaranteed employment instead of 100 days.

The central government has made effective use of this sop to create an impression that the Bill “revamps” MGNREGA, when it actually repeals it. The enhanced ceiling, of course, is welcome. But it is not going to make much difference, for two reasons. First, very few households (about 2% of all rural households) get a full 100 days of work under MGNREGA as of now. When the ceiling is not binding, how does it help to raise it? Raising wage rates, again, is a better way of expanding benefits. Second, raising the ceiling is a cosmetic measure when financial restrictions pull the other way.

In short, far from revamping India’s employment guarantee, the Bill sinks it by demotivating the states and disempowering the workers. This is the end of an era – unless the Bill ends up being repealed under public pressure, just like the Farm Bills.

The author is Visiting Professor at the Department of Economics, Ranchi University.