Review of MGNREGA : Ways to Make it Better

India holds a population of 1.39 billion people, with more than 60 percent living in rural areas. High rates of poverty and unemployment have given rise to the establishment of one of the biggest social welfare schemes in the world- The Mahatma Gandhi National Rural Employment Guarantee Act, 2005. 

The scheme under this Act, also known as Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS), guarantees 100 days of wage employment to adult members of rural households willing to do unskilled manual labor. The Ministry of Rural Development, along with other stakeholders like the Gram panchayats, State Government, etc., are responsible for the functioning of this scheme.

 The main objectives of MGNREGA 2005 include:

  1.  To protect the vulnerable communities living in rural areas by promising wage employment opportunities.
  2. To create a productive rural asset base. 
  3. To empower the socially backward classes through rights-based legislation. 
  4. To strengthen the Local level bodies like the Gram Panchayats.
  5. To strengthen the natural resource base and address issues that contribute to chronic poverty.

What is unique about MGNREGA is that it is a demand-driven and rights-based program. The very essence of this Act is that every person has a legal right to work and deserves the opportunity to do so. The Act guarantees 100 days of work within the stipulated time. If the government fails to do so, then ‘unemployment allowance’ is given to these people. The Act also provides compensation to workers’ families who get injured or die while working under the MGNREGA. 

Over the years, a paradigm shift has taken place in the public policy domain with the implementation of MGNREGA. The scheme undertakes an integrated approach to combat poverty, social and financial exclusion, and environmental degradation. It prioritizes activities like water harvesting, groundwater recharge, and flood protection. The creation of public assets has helped improve livelihood and increase the water conservation table and agricultural productivity. The Act also mandates at least 33 percent of women’s participation. It has helped in the financial and social inclusion of vulnerable communities.  

While the MGNREGA has made some progress, there have been serious concerns regarding the gaps in the Act. The most crucial one was the shift in the payment system. With the transition of the wage payment system to Aadhaar-based payments such as DBT (Direct Benefit Transfer), a new generation of payment problems have emerged. While this step has helped reduce corruption and eliminate intermediaries, the biggest issue that it has caused is the delays and rejections of payments. There are a few reasons this roadblock occurs. Many times, payments are rejected due to a multitude of administrative procedures. Many payments are redirected into incorrect bank accounts, and others are simply rejected due to problems in bank accounts being linked with Aadhaar cards and inactive Aadhaar. Sometimes, beneficiary job cards are deleted from the database due to incomplete documentation. For example, a study from Jharkhand found that 90% of ration cards canceled during Aadhaar linking to the bank were valid. Because of this, many people spend months working only to find out that they have been deleted from the system. These people are not compensated for those days.


Secondly, a caste-based remuneration system was created, which caused a lot of disparity. There were many social problems faced on the ground because some people received payments much later than others on the same muster roll. The now-withdrawn system resulted in social imbalance. 

These already struggling poor have to spend a lot of time, cost, and energy to travel long distances only to find out that their payments have been withheld or there has been an administrative delay. 

Many of these beneficiaries are dependent on the MGNREGA for their livelihood. Such delays can sometimes mean life and death to these people. Due to the centralization of the payment system and subsequent delays, economies at hyperlocal levels in rural areas suffer—issues like food shortage and debt rise. 

The next problem that arises is the minimum wage paid to these workers. The average hike in wages was just by 4 percent in the COVID19 Pandemic. This is much less than the actual minimum wage set by the government. The current wage rate is not enough against the inflation rate of 5.3 percent. What we fail to understand is that the base price set itself is very low to match with the inflation. 

The inadequate funding of the MGNREGA is another reason for its slow regression. The scheme was given its highest budget of ₹1.11 lakh crore and provided aid to 11 crore workers during last year’s lockdown. However, the budget for the scheme in FY2021-22 was just ₹73,000 crore. 

The Central Government claimed that the nationwide lockdown was over and supplementary budget would be available if the funds get finished. The scheme entered the red zone on October 29, when the total expenditure, including the outstanding payments, had already reached ₹79,810 crores. Twenty-one states are already showing a negative net balance, with West Bengal, Tamil Nadu, and Andhra Pradesh suffering the most.  

The nationwide lockdown and the COVID19 Pandemic have pushed people below the poverty line and caused severe economic distress, especially in rural areas. The gap between work demanded and work provided has widened over time. As of November 30, 2021, only 11.66 crores of person-day work was generated against the 22.23 crores of person-day work in October. It has been observed that the government is unable to meet the work demanded by people. Moreover, late payments have further discouraged people from working under this scheme. 

The unmonitored corruption and inconsistent social auditing have led to massive misappropriation of funds, including bribing and payments made to non-existent persons. Over the last four years, Rs 935 crore worth of funds have been misappropriated, with only 1.34 percent recovered.

The government should consider making amendments to the Act for its successful implementation. The basic yet most crucial problem to solve is increasing the wage rate and the number of days of guaranteed work. For this, the government has to increase the expenditure in the budget for this scheme. 

The government must also recruit more people at hyperlocal levels to assist the workers and make them aware of their rights. These people must act as a messenger between the workers and officials like the program officer, gram panchayats, banks, etc. The goal of this scheme is to strengthen the local government bodies, yet the highly centralized structure of this scheme has dissolved the autonomy and powers in the hands of local institutions.

A special audit for the rejected payments must be made and given proper attention. Moreover, A separate council should be made at hyperlocal levels to monitor the funds allocated. This can be helpful in providing autonomy to the Panchayats regarding funds and also reduce the misuse of funds.

Public meetings in the area should be held bi-monthly to address the problems of rejected payments, delays, etc., to reduce multiple visits to banks. The government should also issue financial receipts to the workers at every step. This way, a two-way record will be made regarding the bank visits. 

Lastly, The State Government should be given the autonomy to choose an appropriate payment model based on state conditions. This must be thoroughly discussed with the Central Government so that both are on the same page. 

With the right approach to execution and proper allocation of resources and management, the Mahatma Gandhi National Rural Employment Guarantee Act can be a gamechanger for the Indian rural economy.


Nandini is an aspiring policy maker and a philantropist. She is interested in public policy, economics, research and analysis. With her zeal and passion, she wishes to make this world a better place.