India's Rural Employment Guarantee Scheme Undergoes Legislative Changes
India has implemented reforms to its significant National Rural Employment Guarantee Scheme (NREGS), a program launched in 2005 that provides a legal right to paid work for rural households. The scheme, which was renamed MGNREGA in 2009, previously guaranteed up to 100 days of manual work annually at a statutory minimum wage. This program has been a key component of rural livelihoods, supporting an estimated 65% of India's population living in rural areas, where nearly half rely on agriculture for income.
Scheme Overview and Impact
The NREGS has historically been recognized for its equitable distribution, with over half of its approximately 126 million workers being women, and around 40% from Scheduled Castes or Tribes. While the current government initially viewed the scheme critically, it utilized the program during crises, notably during the Covid-19 pandemic. Economic analyses have indicated that the scheme contributed to increased rural consumption, reduced poverty, improved school attendance, and, in some regions, upward pressure on private-sector wages.
A study by economists Karthik Muralidharan, Paul Niehaus, and Sandip Sukhtankar found that the scheme boosted beneficiary households' earnings by 14% and reduced poverty by 26%, alongside observed increases in worker wage demands and decreases in land returns.
Recent Legislative Changes
A new law, referred to as G RAM G, has been introduced to repeal and rebrand the existing scheme, removing the "Mahatma Gandhi" name. Key changes include:
- Increased Workday Guarantee: The annual employment guarantee for rural households has been raised from 100 to 125 days.
- Unemployment Allowance: The provision entitling workers to an unemployment allowance if not provided jobs within 15 days remains.
- Funding Structure: The previous funding model, which primarily involved a 90:10 split between the federal government and states for labor wages and material costs, has been revised. The new law mandates a 60:40 split between the federal government and most states, potentially increasing states' contributions.
- Central Control: The federal government retains authority over scheme notification and state-wise allocations. States remain legally responsible for providing employment or unemployment allowances. The federal government has allocated $9.5 billion for the scheme in the current financial year.
Government Rationale and Criticisms
Federal Agriculture Minister Shivraj Singh Chouhan stated that the reforms aim for a modernized, more effective, and corruption-free program designed to empower the poor.
However, the changes have drawn criticism from opposition parties, academics, and some state governments. Concerns include:
- Fund Capping and Cost Shifting: Critics argue that capping funds and increasing the financial burden on states could weaken a legal right within India's welfare system.
- Centralization Concerns: Development economist Jean Dreze characterized the changes as a "culmination of the long-standing drive for centralisation" and a reduction of the employment guarantee to a discretionary scheme, citing a clause allowing the federal government to determine where and when the scheme applies.
- Effectiveness of Increased Guarantee: Dreze also noted that the increase to 125 guaranteed workdays might be a "red herring," given that only 7% of rural households received the full 100 days of work in 2023-24, questioning its practical benefit when financial restrictions exist.
- International Concerns: A group of international scholars, led by Olivier De Schutter, UN special rapporteur on extreme poverty and human rights, petitioned the Modi government, warning that the new funding model could undermine the scheme's purpose.
Scheme Challenges and Broader Economic Context
The scheme has faced ongoing challenges, including underfunding and delays in wage payments. For instance, West Bengal's program experienced funding cuts and freezes from 2022 due to alleged non-compliance.
Beyond the scheme's direct impact, its sustained existence highlights a broader challenge in India: the inability to generate sufficient non-farm jobs for its rural workforce. Agricultural growth (3% annually since 2001–02) has lagged behind the broader economy (7%).
Critics like Nitin Pai of the Takshashila Institution argue that while the scheme provides relief, it may not significantly enhance long-term rural productivity and could potentially reduce incentives for agricultural reform.
The government's Economic Survey 2023–24 questioned whether demand under the scheme accurately reflects rural hardship. The survey noted that some states with lower poverty rates, such as Tamil Nadu and Kerala, received disproportionately high shares of funds compared to their poor populations, suggesting that actual work generation is influenced by state administrative capacity.