Is India’s landmark rural employment guarantee scheme under threat from G RAM G?

India has one of the world’s most ambitious social programs – Employment Guarantee, which gives every rural household the legal right to gainful employment.

The Congress government launched the National Rural Employment Guarantee Scheme (NREGS) in 2005, which entitles every rural household to perform paid manual labor for up to 100 days per year at the statutory minimum wage.

This is crucial in a country where 65% of India’s 1.4 billion people live in rural areas, nearly half of the population relies on agriculture for their livelihoods, and their income is insufficient, accounting for only 16% of India’s GDP.

The scheme provides unskilled public jobs in all areas except cities and has become a mainstay of rural livelihoods, buffering demand during economic shocks. It is also one of the best-studied anti-poverty programs in the world, with a strong equity profile: more than half of the estimated 126 million program workers are women, and about 40% are from “scheduled castes” or tribes, among the poorest Indians

The ruling Narendra Modi government was initially critical and later favored budget cuts, but turned to the program during the crisis – especially during the coronavirus pandemic, when large numbers of people returned to the countryside from cities, sharply increasing the demand for jobs. Economists say the program has boosted rural consumption, reduced poverty, boosted school enrollment and pushed up private-sector wages in some areas.

Last week, the government launched a new law Repeal and rename the program. The scheme was renamed MGNREGA in 2009 in honor of Mahatma Gandhi but has now dropped his name entirely.

While the name change has sparked political debate, the more important change is the content of the new law: It’s called G RAM, short for G.t – indeed.

Increase the annual employment guarantee days for rural families from 100 days to 125 days. It retains the right to unemployment benefits for workers who have not found work within 15 days.

Under the original plan, the federal government paid all labor wages and most material costs — a roughly 90:10 split with the states.

Funds will now be split 60:40 between the federal government and most states. This could bring states’ contribution to 40 percent or more of the total project cost. The federal government retains control, including the power to inform the program and determine allocations to states.

Although the central government has allocated $9.5 billion to the scheme in the current fiscal year ending next March, states still have the legal responsibility to provide employment or pay unemployment benefits.

The government sees the reforms as a modern, more effective, corruption-free program aimed at empowering the poor.

Union Agriculture Minister Shivraj Singh Chouhan said: “This law is firmly pro-poor, pro-progress and fully guarantees employment to workers.”

Critics, including opposition parties, academics and some state governments, warn that limiting funding and shifting costs to states could undermine a rare legal right in India’s welfare system.

“This is the culmination of the Modi government’s long push to centralize the program. But it’s not just centralization. It reduces the job guarantee to a discretionary program. A provision allows the federal government to decide where and when the program is implemented,” development economist Jean Dreze told me.

Professor Dreze said increasing the guaranteed working days per household to 125 might sound like a major reform but was a “red herring”. the latest one Report Advocacy group LibTech India found that only 7% of rural households received the 100 days of work guaranteed under the scheme in 2023-24.

“How does raising the cap help when the cap is not binding? Again, raising wage rates is a better way to expand benefits. Second, when financial constraints move in the opposite direction, raising the cap is only a cosmetic measure,” Professor Dreze notes.

These and other concerns appear to have prompted a group of international academics to petition Modi’s government to defend the original plan and warn that new funding models could undermine its purpose.

“This (program) has captured the world’s attention for the achievements and innovative design it demonstrates. To scrap it now would be a historic mistake.” open letterThe warning comes from a panel led by Olivier De Schutter, the United Nations special rapporteur on extreme poverty and human rights.

To be sure, the program faces ongoing challenges, including underfunding and delays in salary payments. Projects in West Bengal, for example, have faced deep cuts and funding freezes since 2022, with the federal government halting funding over alleged irregularities.

Yet despite these challenges, the program appears to have had a measurable impact.

an influential study Economists Karthik Muralidharan, Paul Niehaus and Sandip Sukhtankar found that the program had a wider impact across the economy, increasing the income of beneficiary households by 14% and reducing poverty by 26%. The study found that workers demanded higher wages, land returns declined, and employment growth in villages was greater.

But many say the program’s durability also highlights a deeper structural problem: India’s chronic inability to create enough off-farm jobs to absorb surplus rural labor.

Agriculture has lagged behind the overall economy, growing at just 3% a year since 2001-02, compared with 7% for the rest of the economy.

Critics such as Nitin Pai of the Takshashila Institute, a think tank, argue that the plan alleviates hardship but does little to improve long-term rural productivity and may even undermine incentives for agricultural reform.

“Through (the programme) we are only treating severe underlying discomfort with steroids,” Mr Pai said in a post on X.

The government’s Economic Survey 2023-24 questions whether demand under the scheme truly reflects rural hardship.

If that were the case, the data should show higher use of funds and higher employment rates in poorer states with higher unemployment rates, the survey said.

However, the report pointed out that Tamil Nadu, which has less than 1% of the country’s poor population, received nearly 15% of the program’s funds, while Kerala, which has only 0.1% of the country’s poor population, received nearly 4% of federal allocations.

The survey adds that the actual jobs generated depend largely on a state’s administrative capacity: states with well-trained staff that can process requests on time have a direct impact on the amount of employment provided.

Despite these anomalies, the case for the program remains strong in a country where many people rely on low-income rural jobs and where the deeper challenge is a lack of quality employment.

Even the headline data about India’s rising labor force participation rate can be misleading: more people “working” doesn’t always mean better or more productive jobs.

A recent paper by economists Maitreesh Ghatak, Mrinalini Jha and Jitendra Singh found that the country’s recent rise in labor force participation, especially among women, reflects economic distress rather than growth-driven job creation.

The authors say growth is concentrated in the most vulnerable forms of work: unpaid domestic help and the self-employed, whose productivity is very low and real incomes are falling.

“The recent job expansion reflects economic distress that has led to subsistence work rather than growth-driven higher-quality job creation,” they said.

There is evidence that people are being forced into subsistence jobs rather than into better quality jobs as a result of a stronger economy.

This ensures that the world’s largest job guarantee scheme will remain central to the livelihoods of hundreds of millions of Indians – it remains to be seen whether the revised version will strengthen or weaken its impact.

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