India’s employment guarantee sabotaged to the point of extinction by the neoliberal Narendra Modi

I have closely followed the progress of India’s – Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) – since its inception on September 7, 2005. The scheme has been a major success in reducing rural poverty and providing income security to poor rural communities in India. It has also reduced the so-called ‘desperation migration’ from the rural areas to the already crowded and dysfunctional urban areas. And, the work produced massive community benefits – infrastructure, amenities, etc. The neoliberals in India have always hated the scheme. PM Narendra Modi has long railed against it. Now, finally, they have repealed the governing legislation and replaced it with a new Act that scraps the employment guarantee and puts a fiscal straitjacket on the remaining job creation opportunities. Neoliberals 1, the Indian poor 0.

Some previous blog posts on the topic include:

1. India’s national employment guarantee hampered by supply constraints (March 28, 2016).

2. Large-scale employment guarantee scheme in India improving over time (September 1, 2014).

3. Employment guarantees should be unconditional and demand-driven (June 25, 2012).

4. Employment guarantees in vogue – well not really (November 18, 2009).

5. Employment guarantees in developing countries (May 10, 2009).

If one reads back through those posts, it is clear that I have been generally supportive of the Indian scheme.

However, the system has been far from perfect and the fact that it was supply-driven (fiscally-constrained) rather than demand-driven was a major shortcoming.

The choice of a supply-driven system, where the number of jobs is rationed to remain well below the actual social need, over a demand-driven system, where the government makes an unconditional job offer to anyone who wants one, is just another example of the way the fiscal capacity of currency-issuing governments is misrepresented by the mainstream economists.

While a demand-driven system would amplify the benefits that the supply-driven system is already generating, which I will document below, the ruse that the Indian government is financially constrained means that the poor communities in rural India, which were the target of this program, are not given the best shot at reaching their potential.

Their well-being, which could be dramatically-improved by the simple switch in thinking about this sort of policy approach, is being artificially constrained by the macroeconomic fictions touted by my profession.

Regular readers will know that I advocate a demand-driven approach – which we call the – Job Guarantee.

The NREGA is a compromised version of that approach and as a result of the ideological constraints that were placed on its operations from the outset, it loses many of the desirable features of a Job Guarantee.

As an aside, I will be London in the latter part of February talking about these issues as well as a lot of other things.

So the NREGA as it was originally conceived was far from perfect.

The Home Page for the – Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) = provides a massive amount of information about the policy intervention.

The formalities are laid out in the – Mahatma Gandhi National Rural Employment Guarantee Act – which was passed by the Indian Parliament on August 23, 2005.

The Scheme guarantees:

1. 100 days of minimum-wage employment on public works to every rural household that asks for it.

2. Work must be “provided within a radius of 5 kilometers of the applicant’s residence if possible.”

3. Once an adult applies for work, the scheme must employ them within 15 days or pay unemployment benefits.

4. Equal pay for men and women.

5. The adults must be willing to undertake unskilled manual labour a the legal minimum wage.

6. “Shade, drinking water, and first-aid are provided at every worksite.”

7. Local communities have input into the selection and design of the jobs and local government plans and implements the work activities.

8. The scheme is sympathetic to those with disabilities and those of advancing years.

When the scheme was up and running opinion was divided.

In 2012, the Ministry of Rural Development, which runs the scheme, published an evaluation report in 2012 – MGNREGA Sameeksha – covering the first 6 years of the program (2006-2012) and concluded that the NREGA was (p. ix):

It is perhaps the largest and most ambitious social security and public works programme in the world. While market-oriented reforms are necessary to generate faster growth and larger public resources, they do not, on their own, guarantee participatory and equitable growth. Active social policies (such as the MGNREGA), far from detracting from economic reforms, complement them in an essential way.

Notwithstanding some initial scepticism about the practicality and viability of this initiative, six years later, the basic soundness and high potential of the MGNREGA are well established. That, at any rate, is one of the main messages emerging from this extensive review of research on MGNREGA. It is also a message that comes loud and clear from the resounding popularity of MGNREGA—today, about one-fourth of all rural households participate in the programme every year.

At that point, the summary statistics were quite stunning in their scale:

1. 50 million Indians from poor rural communities have been employed in the scheme.

2. 14.6 million projects were started and at 2012, around 60 per cent were completed – the outputs enriching the local communities (rural connectivity, water security, flood and drought protection, etc).

3. 51 per cent of the person-days went to disadvantaged groups (Scheduled Casts and Scheduled Tribes) and 47 per cent of the work went to women (originally the target was 33 per cent).

The NREGA was designed to arrest the rural-urban migration that was swamping the cities as more job opportunities arose in the industrial sectors.

The government rightly identified that this sort of migration, while initially beneficial to poorer rural communities (because there were more jobs in the cities), had led to overcrowding, housing and infrastructure issues, and suppressed wages

By providing guaranteed work in the rural areas, the government was able to stifle the relentless shift of people into the already overcrowded and dysfunctional urban spaces.

Of course, nothing a neoliberal likes more than a massive excess supply of desperate workers undercutting each other for work and driving down wages into the process.

They call this dynamic ‘economic development’.

The NREGA was the anathema to them.

The neoliberals in the World Bank, who together with the IMF have done their utmost to ensure the poorer countries stay that way, expressed this view in their – World Development Report 2009: Reshaping Economic Geography – they couldn’t hold back and concluded that (p.163):

The economic benefits of migration are not always recognized by policy makers. Two forms of policy have been attempted to counter migration in India. The first response has been to increase rural employment, in an attempt to stem movement out of rural areas. This policy implicitly assumes that deteriorating agriculture leads to out-migration and that improved employment opportunities in lagging rural areas can reduce or reverse migration.

They also claimed that “past restrictions on the movement of labor may have kept the size of Indian cites inefficiently small, at a cost in forgone growth”.

The World Bank’s chief economist at the time said that:

The world’s most geographically disadvantaged people know all too well that growth does not come to every place at once … Markets favour some places over others. To fight this concentration is tantamount to fighting prosperity.

The World Bank essentially claimed that the NREGA was damaging economic development and preventing poverty alleviation.

It is amazing how people can look at the same facts and come up with such contrasting conclusions.

And somewhere in the next five years, the World Bank changed tunes, like not just a bit.

In its – World Development Report 2014: Risk and Opportunity—Managing Risk for Development – we read that p.30):

Moreover, to promote financial inclusion, the government can lead by example through innovative practices. An interesting case is India’s National Rural Employment Guarantee Act, which has improved outreach to poor people living in rural areas through the introduction of government-to-person payments using a bank account.

And (p.155):

India’s Mahatma Gandhi National Rural Employment Guarantee Act illustrates how good governance and social mobilization go hand-in-hand. This law, enacted after pressure from the Right to Food Campaign and others, creates an entitlement of 100 days of unskilled employment per year, at minimum wage, to all workers in rural areas who demand it. The law also provides for social audits and redress of grievances. Demand for work is massive, mostly from poor and disadvantaged groups, and at times of the year where no other work is available. Not only does the program offer a useful safety net, but it also helps spread aware-
ness of rights and promotes dignity.

Okay.

The Bank concluded that NREGA represented a “stellar example of rural development”.

Really?

From hobbling development to being ‘stellar example’ of development.

Lesson: disregard anything these organisations say or write.

From then to Now

As I catch up with work in the New Year that I left in abeyance while we finished the Macroeconomics textbook (2nd edition), I have been reading the new legislation that was introduced by the Indian government in late 2025.

On December 22, 2025, the Indian government announced that it has repealed the – Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), which underpinned the scheme, and replaced it with new legislation – Viksit Bharat – Guarantee for Rozgar and Ajeevika Mission (Gramin) (VB-G RAM G) Act, 2025.

The Viksit Bharat 2047 is the Indian government’s economic development plan up until the year 2047.

I won’t cover the details of that plan here.

The new approach to rural employment has changed some elements of the NREGA – some of which improve the program, while others will probably be the death knell.

Essentially, the Modi government wants to be rid of the program and is pursuing that goal incrementally.

The good news is that the guaranteed days of work for a successful applicant is increased from 100 to 125 days per year.

However, the bad aspects of the change swamp the good news.

Essentially, the Modi government is centralising monitoring and control whereas the NREGA allowed local action to implement the job projects.

The shift to centralised control comes with a new discretionary ‘switch-off’ power, which basically allows the central government to suspend the program for up to 60 days a year, which, of course, means that there is no longer a legal employment guarantee in operation.

The so-called compulsory “work pause” is claimed to ensure there is an adequate workforce during busy seasonal harvesting periods, but is really about reducing the fiscal impact.

Further, under the NREGA, the national government paid 90 per cent of the wage costs, whereas the new legislation its share has been reduced to 60 per cent, with 40 per cent now being forced on the state governments (there are some exceptions).

The impact of that will be that poorer states will not participate in the scheme.

Further, the central government will be able to decree which projects will be funded up to each state’s limit.

Finally, and most significantly. the NREGA provided a legal right to work or income payment if no work was provided within 15 days of applying.

In that sense, it was a partial demand-driven system with a supply constraint imposed.

However, under the new scheme, the scale of the jobs being provided will be determined by a fixed fiscal outlay for each state at the discretion of the central government.

It is a subtle but not insignificant shift and more stridently imposes the supply-driven nature of the original NREGA program, which was one of its worst features.

The fiscal constraint under NREGA was the 100 days of guaranteed work rather than providing the hours that were desired bu the workers.

However, under the new approach, how many applicants are accepted becomes limited by the fiscal allocations from the centre to the states.

The original NREGA was a modern representation of the great Mahatma Gandi’s vision which he articulated in his famous article – The Great Sentinel – which was published in the journal – Young India – on October 13, 1913.

He wrote:

It is my conviction that India is a house on fire, because its manhood is being daily scorched, it is dying of hunger because it has no work to buy food with. Khulna is starving not because the people cannot work, but because they have no work …

To a people famishing and idle, the only acceptable form in which God can dare appear is work and promise of food as wages. God created man to work for his food, and said that those who ate without work were thieves …

There is a lot more in that article and while the emphasis on males is an artefact of the time, the sentiment is sound.

That sentiment drove the NREGA movement.

But the new version violates that sentiment.

It is a victory for Modi who has always hated the NREGA.

The political scientists are also now suggesting that the way in which the central government can now distribute funds to the states to operationalise the work, rather than funding the 100 days on demand irrespective of state the applicant lived in, opens the door for wholesale corruption and vote-buying.