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The Mahatma Gandhi National Rural Employment Guarantee Act

The Mahatma Gandhi National Rural Employment Guarantee Act (MNREGA) was adopted in 2005 and first became operational in 200 of the poorest districts in India in February 2006. Within two and a half years it was extended to the rest of the country in April 2008.

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This Act was a ground-breaking; although there had been similar employment generating programmes before, it was the first time the right to work had been legally recognised. Development in recent years in India has been spearheaded by a rights-based approach and a legal guarantee of entitlements. In 2009 the Right to Education Act was passed that bestowed the right to free and compulsory education to children between the ages of 6 and 14. There are currently talks about implementing the Right to Food as a corollary of the Right to Life (Article 21 of the Constitution) to prevent hunger and starvation in the country.

In India, over 70% of the population lives in villages and the rural economy depends heavily on agriculture. Consequently, there is a major problem of seasonal employment and large numbers among the rural population migrate in search of work to other regions during the slack season.

The MNREGA plays a significant role in this regard by providing a legal guarantee of 100 days of employment in every financial year to adult members of all rural households willing to do public work-related unskilled manual work at a minimum wage. According to the provisions of the Act, work needs to be provided to a person who registers for it within fifteen days of the date of demand, failing which they are eligible to receive an unemployment allowance from the state government. Therefore, the Act acts as a social safety net, provides employment to the poorest and aims at inclusive growth and strengthening of the rural economy.

Inclusive growth

MNREGA has succeeded in increasing employment better than any previous government scheme. However, the success of MNREGA needs to me measured on various other parameters; apart from generating employment it also aims to achieve other socio-economic goals. For one, being intrinsically self targeting, it promotes the social inclusion and economic empowerment of marginalised groups. According to the National Report 2010-2011 by the Ministry of Rural Development that oversees the implementation of the scheme, the Scheduled Castes comprise 22.56% of person-days and the Scheduled Tribes comprise 17.27% of person-days. Considering the rural setup where the caste system continues to dominate the social order and deny the backward communities their rights, this is significant and could play a role in improving the condition of _____ and be an entry point for their involvement in local self government.

Further, MNREGA has also sought to involve women to a large extent. It not only provides them with the opportunity to be engaged in gainful employment, but also promotes gender equality by setting an equal wage rate for males and females. While the Act is committed to ensuring that at least 33% of the workers are women, these expectations have been surpassed in most states. The National Report 2010-2011 attributes 51.11% of person-days to women. It is therefore aiding in promoting the economic freedom and empowerment of women in rural areas through their financial independence.

The implementation of MNREGA could through the macroeconomic concepts of the multiplier and accelerator stimulate further growth in rural India. MNREGA being self targeting creates purchasing power among the economically weak sections. Their demand for commodities results in investment for increased production, which in turn generates additional income. This process (the multiplier effect) depends on the marginal propensity to consume (MPC) of those affected. Seeing as those benefiting are at the bottom of the pyramid, their MPC is high and therefore the effect of the multiplier is strong.

Rural infrastructure and employment

Another key focus of the Act is to create durable assets in rural areas and thereby advance the rural economy and encourage sustainable development. Projects related to rural connectivity, irrigation, flood control and drought proofing, land development are taken up to raise agricultural productivity.

Apart from this, job creation in rural areas is meant to prevent migration. There are reports that the participation of women is high because they find is a good source of additional income while being able to stay in their own village, while the men migrate to other areas for work. It was also aimed at preventing seasonal migration during the slack season of agriculture with the hope that it will prevent disruption of the education of rural children. However, the guarantee of one 100 days of work a year is often left unfulfilled and therefore MNREGA has not been completely successful in curbing distress migration.

On the other hand the World Bank in its World Development Report 2009 criticised MNREGA due to its negative impact on economic growth by discouraging rural-urban migration. According to the report development requires urbanisation and the government should not fight the tendency of economic activity being concentrated in a few regions. However, the massive population of India and the existing high population density in the large cities makes it very difficult for the physical and social infrastructure to accommodate the volume of migrants that come in. Consequently, although labourers may receive higher wages than in the villages, they often have to endure terrible living and working conditions in the cities.

With this in mind, although urban centres are important for development, without adequate infrastructure rural-urban migration in large numbers proves to be a burden and therefore the creation of jobs in rural areas is required. In such a case, creation of infrastructure such as roads and electricity can create jobs in rural areas and aid the transformation of villages into towns. The state of Tamil Nadu, which has been very effective in implementing MNREGA, is the most urbanised state in the country and has succeeded in this objective by focusing on the development of smaller towns rather than larger cities.

Impact on wages

An expected spill over of the scheme has been a significant rise in market wages in rural areas in almost all states. However, critics have held the scheme responsible for the shortages seen in the supply of agricultural labour which has resulted in agriculture becoming unviable and food prices increasing. On the one hand, agricultural labourers deserve a fair wage and in this regard MNREGA has paid a positive role; on the other hand, in light of the problems faced by the agricultural sector, some consider this increase in wages a distortion in the labour market that is leading to inefficiencies and increased costs. The labour shortage is forcing farmers to incur added costs to replace the cheap migrant labourers with machines. The increased prices of agricultural goods have a negative impact and affect those living on the margins the most, as they are most vulnerable to price increases. Therefore, some farmers’ groups have suggested that the 100 days work be provided only during the lean season for agriculture but this has not been implemented yet.

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Corruption and delays

A common complaint is that of delays at every stage- a person who registers for employment is supposed to be provided with a job within 15 days failing which he/she should be able to claim an unemployment allowance. Further, the Act makes provisions requiring wages to be paid within 15 days of employment. However, there are constant delays in payments and workers often wait for months to receive their wages. Delayed wages warrant compensation under the Payment of Wages Act. However, due to an ineffective grievance mechanism the problem has not been addressed.

Further, the national average for 2008-2009 was 48 days of employment per household as opposed to the guarantee of 100 days. No state has effectively implemented the unemployment benefit mechanism and those that are not being given their 100 days of work are not being paid any allowance.

Another problem faced in execution is that of corruption and leakages of funds. Although the Act emphasises transparency, some areas still witness high levels of corruption. For instance, public works in Orissa still follow the PC system where contractors, engineers and other officials demand a fixed percentage of the outlay. Jean Dreze, a development economist and one of the architects of the MNREGA, told us on December 17, 2010 at a talk at St Xavier’s College that in areas where the PC system is in place intermediaries taking a cut out of the funds is not even considered corruption provided they take their regular percentage cut- only any amount beyond that was regarded as corrupt practice.

Still, since the implementation of MNREGA, corruption has started coming down. Social audits are conducted to monitor the working of the scheme, many of the muster rolls are available online, and the people are gradually becoming more aware and are therefore able to monitor the system and ensure payment. The Act mentions a variety of transparency safeguards; attempts must be made to enforce them and punish those that indulge in corrupt practices.

In an attempt to reduce corruption the wages are to be paid through bank accounts and post office deposits to ensure that the entire amount goes to the labourers. However, the sudden shift caused problems of its own. The banking system is finding it difficult to handle the volume of transactions which is leading to delays in wage payments. It is also creating hardship for the labourers that live in remote areas and have to travel long distances to access banks. Nevertheless it is a move in the positive direction and will play a role in improving the penetration of the banking system in rural India.

Another move to reduce corruption under the contractor system which involved contractors siphoning a percentage of the total project costs was the requirement under the Act that 60% of the total outlay for a project needs to go to the labourers. However, a downside of this constraint is that it often results in the creation of assets that do not last for long, such as temporary mud roads, and therefore do not aid in rural development effectively.

Implementation problems

One of the major hurdles is the lack of cooperation between the state governments and the centre. Enthusiasm among the states has been inconsistent and the poorest states of Bihar, Orissa and Jharkhand have not implemented it effectively. State governments have employment guarantee schemes and need to co-ordinate with the central government. The absence of such a co-operation adversely affects the functioning of the scheme.

Another problem is the lack of suitable staff; a people-centred programme such as the NREGS requires a dedicated human resource staff. However, there is too much bureaucratic control. Further, there is a shortage of technical staff such as engineers leading to the construction of inefficient projects.


The Mahatma Gandhi National Rural Employment Guarantee Act was the first attempt to codify development rights in a legal context. Although it is not the key to the rejuvenation of rural areas or the end of poverty in India, it is a chance for the rural poor that live on the margins to stake a small claim in the development process. India has over 260 million people living below poverty line; MNREGA, although not flawless, could prove to be their chance to rise out of absolute poverty and begin to reap the fruits of development the rest of the country is enjoying.

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