The Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) was conceived as more than a welfare programme. It was a statutory expression of the right to work, echoing Article 23 of the Universal Declaration of Human Rights, which recognises employment as a fundamental human right. Two decades after its launch, the scheme’s importance lies not only in the wages it delivered, but in how it reshaped local governance, rural infrastructure, and financial inclusion.
Recent structural changes, however, suggest a drift away from that original constitutional and economic intent—less through legislative amendment and more through administrative redesign.
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A decentralised engine of rural transformation
At its core, MGNREGA empowered gram panchayats to identify works from locally approved project shelves and execute them on demand. This operational design aligned closely with the 73rd Constitutional Amendment, which envisaged panchayats as institutions of self-government rather than delivery agents of centrally chosen schemes.
Over time, states used this flexibility to converge MGNREGA with other public programmes. Digitisation of muster rolls, geo-tagging of assets, and direct wage payments strengthened transparency while allowing panchayats to plan durable infrastructure. In villages with populations of 1,500 or less, this translated into tangible improvements—cement concrete roads, drainage systems, farm ponds, wells, school repairs, and primary health centre upgrades. Labour for individual household assets, including toilets and land development, further strengthened household resilience.
Southern and central states, including Tamil Nadu, Karnataka, Telangana, and parts of Madhya Pradesh, demonstrated how decentralised planning could lift living standards. Better water access reduced water-borne diseases such as diarrhoea and malaria, while irrigation assets improved crop yields on small holdings. These were not incidental outcomes; they were the product of local planning authority backed by assured funding.
Less often acknowledged is that many of these works also strengthened climate resilience. Water harvesting structures, field bunding, watershed treatment, and soil moisture conservation cushioned villages against droughts and erratic rainfall. In climate-vulnerable districts, MGNREGA functioned as an adaptation instrument as much as an employment programme.
Digitisation, DBT, and financial inclusion
MGNREGA became India’s first nationwide laboratory for direct benefit transfers. From 2012 onward, wage payments shifted directly into workers’ bank or post-office accounts, plugging leakages that had long plagued cash-based welfare schemes. The need to deliver payments within a fixed radius accelerated the spread of banking infrastructure in rural areas.
Zero-balance accounts—later regularised into savings accounts—expanded financial inclusion well before the launch of the Jan Dhan programme. Post offices and cooperative banks were pushed to digitise operations. The administrative backbone built for MGNREGA later became the template for virtually all major welfare transfers, from pensions to food subsidies.
Yet digitisation also introduced new vulnerabilities. Payment delays—often extending well beyond the legally mandated 15-day limit—became a persistent feature. Compensation for delayed wages, explicitly required under the Act, has rarely been paid. Many delays arise not from state-level failures, but from fund exhaustion at the Centre, MIS rejections, or Aadhaar-related authentication issues. For households dependent on daily wages, such delays blunt the scheme’s counter-cyclical purpose.
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Centralised priorities weaken local choice
Recent changes signal a shift away from this decentralised architecture. The move towards prioritising selected sectors and geographically identified works has reduced the scope for panchayats to determine local needs. This centralisation mirrors a broader trend in fiscal policy, where conditional transfers increasingly replace untied grants.
The 15th Finance Commission’s decision to earmark portions of grants for specific sectors such as water supply illustrates this shift. While appropriate for lagging regions, such conditionality is redundant in states that have already achieved near-universal coverage. Panchayats in these states have repeatedly argued for retaining untied funds to address second-order needs—maintenance, climate resilience, or livelihood infrastructure. New centrally driven frameworks risk subordinating local planning to uniform national templates.
More fundamentally, the dilution of decentralisation has occurred through executive instruments rather than legislative change. Annual labour budgets, administrative circulars restricting permissible works, and delayed approvals have gradually converted a legal entitlement into a discretionary programme—without parliamentary debate.
Fiscal stress and the burden on states
The most serious concern lies in the revised funding structure. States are now expected to bear up to 40% of certain costs, compared to earlier requirements that limited their contribution largely to material components. This change coincides with a period of constrained state finances.
The introduction of the goods and services tax centralised most major tax handles, leaving states dependent on devolutions and transfers. With the 16th Finance Commission expected to maintain devolution at around 41% of the divisible pool, fiscally weaker states face limited room to absorb higher MGNREGA costs. The likely outcome is delayed wage payments, rationed workdays, or outright denial of work—outcomes that undermine the scheme’s legal guarantee.
The insertion of clauses that condition employment on the “availability of funds” marks a decisive shift. A right that can be exercised only when budgets permit ceases to function as a right.
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Labour intensity, gender, and wage bargaining power
A related shift towards more material-intensive works—such as piped water supply or sanitation infrastructure—reduces the scheme’s capacity to generate employment at scale. Earlier convergence models prioritised earthworks, land development, wells, and rural roads, which absorbed large amounts of labour while creating productive assets.
MGNREGA has also been among India’s most gender-inclusive labour programmes, with women accounting for more than half of all person-days nationally, and substantially higher shares in several southern states. Reduced labour demand and irregular work availability disproportionately affect women workers, weakening household food security and increasing unpaid care burdens.
Reclaiming the original mandate
MGNREGA wages historically acted as a floor for rural labour markets. During peak agricultural seasons, the scheme strengthened workers’ bargaining power by offering an alternative source of income. Diluting its scale and predictability weakens this wage anchor, with broader implications for rural consumption.
MGNREGA’s strength lay in its capacity to adapt—through social audits, grievance redress mechanisms, and periodic course corrections by the Ministry of Rural Development. That adaptive capacity must now be used to protect its foundational principles. Panchayats must retain planning authority. Funding must be predictable. Wage payments must be timely. And statutory guarantees must not be hollowed out through executive discretion.
The issue is not one of programme branding or nomenclature. It is about preserving a decentralised, rights-based instrument that reshaped rural India, strengthened local governments, advanced financial inclusion, and provided a climate buffer for vulnerable regions. Diluting that legacy would represent not reform, but retreat.
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Dr Aruna Sharma is a New Delhi-based development economist. She is a 1982-batch Indian Administrative Service officer. She retired as steel secretary in 2018.