VB-G Ram G Bill marks a departure from spirit of MGNREGA

Despite public criticism (often based on anecdotal evidence), a pioneering study by economists Karthik Muralidharan, Paul Niehaus and Sandip Sukhtankar, published in 2023, finds that when implemented efficiently, MGNREGA can raise income by 14 per cent and lower poverty by 26 per cent. A substantial share of these gains is driven by a rise in private sector wages, reflecting higher bargaining power among unskilled workers. Further, the study shows that due to higher income levels induced by MGNREGA, villages witness an increase in other non-agricultural economic activities. A similar study by Clément Imbert and John Papp, published in 2015, finds positive effects of MGNREGA amongst both beneficiaries as well as non-beneficiaries.

VB-G Ram G: More work days but shorter work window

The new bill increases the number of person-days guaranteed by the Centre from 100 to 125 per household per year. While this provision, at first glance, sounds like a booster shot, an accompanying clause merits deeper scrutiny. Section 6 of Chapter 2 dictates that state governments will notify “peak” agricultural periods of 60 days, depending on local agro-climatic conditions in different states.

During this period, no work under the new scheme will be undertaken. On the face of it, the broad logic behind this step does not seem too troubling. If adequate employment is available during the agricultural season, one could reasonably argue that there is no need to operate the scheme during that time. Concentrating implementation only during the lean period will also be helpful for the already overburdened local bureaucracy (especially frontline workers).

A closer look at the data may further support this argument. During FY 2024-25, across the 75 districts of the state of Uttar Pradesh, the two leanest months for MGNREGA witnessed less than 9 per cent of the district’s overall MGNREGA demand on average. The same for Tamil Nadu’s 37 districts is a mere 2.2 per cent. In other words, demand for MGNREGA does seem to be concentrated during certain months of the year.

What this argument ignores is the differences in local economic and social structures across districts. Consider an example arising from landholding patterns. In districts where landholding is concentrated in the hands of a small number of individuals, workers’ bargaining power (and consequently, wages) is already low to begin with. Deactivation of MGNREGA for a period of 60 days in these areas will further erode their economic prospects. This concern is also supported by evidence. In Uttar Pradesh, the highest demand during the two leanest months comes from districts such as Ayodhya (14 per cent), Sultanpur (13 per cent) and Pratapgarh (14 per cent), all of which remained historically shaped by the taluqdari (landlord) system of the colonial era.

Higher financial burden on state governments

Under MGNREGA, the Centre annually sets aside funds in the budget based on anticipated demand for work, without any state-wise allocation. During the year, funds are released to state governments based on actual MGNREGA demand. The new policy marks a clear departure. The bill specifies that state-wise allocations will be determined “based on objective parameters as may be prescribed by the Central Government”. Moreover, any expenditure incurred by a state above this normative allocation will have to be borne by the state government.

A key challenge that the Ministry of Rural Development has faced in the implementation of the current policy pertains to states with higher state capacity utilising funds more efficiently. For instance, government data from FY 2021-22 shows that despite being richer and much less populous, Tamil Nadu utilised roughly 10 per cent of MGNREGA’s national allocation, when compared to Bihar (5.5 per cent) and Uttar Pradesh (8.7 per cent). Allocation by the central government may help resolve this conundrum.

A major point of departure from MGNREGA pertains to the contribution made by state governments in funding the scheme. Under MGNREGA, the central government was responsible for 100 per cent of the wage bill for unskilled workers and 75 per cent of costs pertaining to materials, and skilled and semi-skilled workers. Under the new policy, a majority of the state governments will bear 40 per cent of the total cost (with some exceptions for hilly and north-eastern states). This, in addition to bearing the cost of expenses incurred beyond the central government’s allocated amount, will imply a massive financial burden on state governments, many of which are already reeling under the stress of other populist welfare schemes.

Delayed payments have consistently been a major obstacle to the smooth functioning of MGNREGA. The change in the funding contribution structure may pave the way for a much larger crisis due to fund shortages. This may especially be true for poorer states with unfavourable central allocations.

The passage of the VB-G Ram G Bill will officially mark the end of the MGNREGA era. The transition will entail several changes. While some, such as the enhanced use of technology, are operational, others are more fundamental and will ultimately determine whether the spirit of MGNREGA is preserved.

Batra is assistant professor, Economics, Azim Premji University and Prabhakar is assistant professor, Economics, Ashoka University