The death of a lifeline called NREGA

The passage of the Viksit Bharat Guarantee for Rozgar and Ajeevika Mission (Gramin) Bill, 2025 marks a decisive break from one of India’s most consequential social welfare laws. It replaced the landmark National Rural Employment Guarantee Act (NREGA) of 2005, which was later named after Mahatma Gandhi to become MGNREGA.

While the government claims the new law expands guaranteed work from 100 to 125 days, the claim fails the most cursory assessment. Not just that, VB–GRAMG dismantles the justiciable right to work; it recentralises control, shifts the fiscal burden to states and weakens labour’s bargaining power in rural India.

NREGA was never just another welfare scheme. It gave legal status to the State’s obligation — under Article 41 of the Constitution — to secure the right to work, turning it into an enforceable entitlement. If work was not provided within 15 days of demand, the State was legally bound to pay an unemployment allowance.

Under NREGA, employment was demand-driven, universal, and the right was justiciable. NREGA was a proxy for genuine unemployment insurance, a social security measure, which is still a distant dream despite the new Labour Codes. The VB-GRAMG Bill replaces this rights-based, demand-led framework with a supply-driven, budget-capped scheme whose ‘guarantees’ are subject to Central allocations and administrative discretion.

EGS: a forgotten legacy

The roots of NREGA lay in Maharashtra’s Employment Guarantee Scheme (EGS), born out of the devastating droughts of the early 1970s. The EGS was financed through a tax on urban workers and backed by a statutory guarantee of rural employment. Its genius lay in its simplicity: work on demand, locally determined public works, and wages paid as a matter of right.

For over three decades, EGS acted as an unemployment insurance programme for rural Maharashtra — and later became the intellectual and institutional template for NREGA. The design of EGS itself was inspired by pilot projects implemented in the early 1960s, under the leadership of V.S. Page, a dhoti-clad Gandhian, who was the Speaker of Maharashtra’s Legislative Council for a record 18 years.

By setting a floor on wages and offering workers an exit option, EGS reduced labour’s dependence on landlords and contractors. Unsurprisingly, it faced resistance from the landed elite, who complained about ‘labour shortages’ and rising wages. That resistance never disappeared; it merely went underground.

The new Bill’s provision allowing a 60-day pause in employment during peak agricultural seasons — ostensibly to ‘facilitate labour availability’ — reads like a concession to agrarian power structures that have long resented NREGA’s impact on rural labour markets. Even at its peak, NREGA could provide only a tiny fraction of total person-days of employment in rural areas. So, its distortionary impact on the labour market is overstated.

The centrepiece of the government’s defence is the increase in guaranteed employment from 100 to 125 days. But this is largely symbolic. Even under NREGA, only a small fraction of households actually received the full 100 days of work. Raising the ceiling without ensuring an enforceable demand-based provision is like promising a taller ladder while quietly removing the ground beneath it.

More importantly, the new Bill caps total expenditure through ‘State-wise normative allocations’ determined by the Centre. Any spending beyond this ceiling must be borne by the States, following procedures prescribed by the Centre. A right that depends on fiscal discretion is not a right; it is a favour. By embedding budget caps in the statute, the Bill converts a legal guarantee into a centrally rationed programme.

Setback for cooperative federalism

NREGA, for all its flaws, embodied a workable form of cooperative federalism. The Centre bore the full wage cost and most of the material cost, recognising that poorer states with higher unemployment also have weaker fiscal capacity.

The VB–GRAMG Bill overturns this logic. The proposed 60:40 cost-sharing pattern shifts a significant additional burden onto the states — estimated at over Rs 50,000 crore annually — at a time when the fiscal autonomy of states has already been eroded by GST and borrowing constraints.

This is not merely a fiscal issue; it is a constitutional one. Employment and public works fall squarely within the State List and the domain of local self-government under the Eleventh Schedule. The new Bill exemplifies what scholars have called the Centre’s ‘seventh schedule creep’: expanding Central control over subjects constitutionally assigned to states, while leaving states to carry the financial and political costs of implementation.

Defenders of the Bill argue that NREGA was inefficient, rigid and corruption prone. But these were problems of implementation, not design. The response to delayed payments, biometric failures and exclusion errors should have been institutional repair, not legal dilution. Also, introducing centralised, AI-based dashboards for selection of projects and works takes away the autonomy of the local government and community, which was a feature of NREGA.

From demand-driven to discretionary

NREGA’s most radical feature was its universality. It did not rely on poverty lines, beneficiary lists or targeting errors. Anyone willing to do unskilled manual work could demand employment. This self-targeting design minimised exclusion and leakage, a point repeatedly affirmed by empirical research.

The VB–GRAMG Bill departs from this principle by allowing the Centre to notify specific rural areas where employment will be provided. A guarantee that applies only where the Centre chooses to apply it is a contradiction in terms.

During the Covid-19 pandemic, NREGA acted as a shock absorber, sustaining rural demand and preventing mass destitution. It has also raised the labour force participation of women, improved bargaining power for the poorest workers, and reduced distress migration.

These were not side effects; they were central to its design. A programme that improves, even modestly, the bargaining power of labour in one of the most unequal labour markets in the world should be celebrated, not dismantled.

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Equally disturbing is the way the new Bill was introduced and passed — without reference to a Parliamentary Standing Committee and without serious consultation with states, workers’ organisations or civil society. For a law that alters the balance between the citizen and the State so fundamentally, this procedural haste does not fit into democratic norms.

A nation aspiring to be ‘Viksit Bharat’ by 2047 should be expanding the scope of social citizenship and social security, not shrinking it. Reforming NREGA was both desirable and necessary. But replacing it with a discretionary scheme is not reform; it is a moral, economic and constitutional step backward.

Ajit Ranade is a noted economist. More of his writing may be found here

Article courtesy: The Billion Press