Mint Explainer: Why is the government looking to replace India’s rural job guarantee scheme?

The new bill seeks to replace the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), 2005 and the scheme named after it, MGNREGS, which has 260 million registered workers and covers 26,9000 gram panchayats across India.

According to the government, the bill seeks to transform the nature of the scheme by bringing states in as partners, and resolve a longstanding problem in the rural job market—of MGNREGA jobs competing with regular ones when their wages are close to or higher than what local farmers or small contractors pay.

Critics, however, say the bill significantly increases the financial and administrative burden on local governments as it passes on some of the wage costs – currently borne entirely by the Centre – to states.

Mint takes a closer look at proposed changes, their implications, and the critisisms against them.

Why is the government looking to revamp MGNREGA?

In a statement on the new bill, the government said rural India has undergone a transformation over the past two decades. It said the poverty rate fell sharply from 25.7% in FY12 to 4.86% in FY24, supported by rising incomes, consumption, and access to financial services.

With stronger social protection, better connectivity, deeper digital access, and more diverse livelihoods in rural areas, the old framework no longer reflected today’s reality, it said.

What are the changes proposed in the new bill?

The biggest change the bill proposes concerns funding for the scheme. Under MGNREGA, the union government pays 100% of wage costs, which account for most of the total. But under the proposed scheme, it will fund only 60% of the total cost in most states, and 90% in north-eastern and Himalayan states, with local governments funding the balance. Union territories will get 100% funding.

The proposed bill also gives the Union government the power to determine the state-wise "normative allocation" every year, with any excess expenditure borne by state governments. This would mark a major shift from the current demand-driven model.

Both of these changes would substantially increase the fiscal burden on states, which are only responsible for 25% of the cost of materials and 50% of administration costs – relatively minor expenses – under MGNREGA.

If the new legislation is passed, the ministry of rural development estimates the total annual requirement of funds for wages, material and administrative costs will be ₹1,51,282 crore, of which the centre will have to pay ₹95,692.30 crore under a 60:40 split, leaving these states with a ₹55,589.70 crore bill.

The also bill guarantees 125 days of employment per rural household per financial year, up from 100 days under MGNREGA, and proposes a robust monitoring system to prevent leakage.

According to the government, an examination of the MNREGS across 23 states this fiscal year found that several works were either missing or not proportionate to the expenditure incurred, machinery was used where manual labour was mandated, and the attendance system was widely bypassed. It said cases of misappropriation across states amounted to ₹193.67 crore in FY25.

The bill seeks to generate employment while building durable rural assets through four priority verticals—water security, core rural infrastructure, livelihood infrastructure and climate-resilient works—covering initiatives such as rejuvenated water bodies under Mission Amrit Sarovar, roads, markets, storage facilities, and soil-water conservation to strengthen agriculture, expand rural businesses, diversify incomes and safeguard livelihoods.

It also mandates Viksit Gram Panchayat Plans, prepared by panchayats themselves, under which projects will be planned and mapped in advance, reducing uncertainty and seasonal gaps in employment.

To safeguard wages, the government will continue with fully digital payments. In FY25, 99.94% of wages were paid electronically, a trend that will be reinforced through biometric attendance and Aadhaar-based verification to prevent wage theft and leakages.

The framework also seeks to strengthen workers' rights by mandating the payment of an unemployment allowance by states if they fail to provide employment within the stipulated period.

Under the proposed bill, no work will be executed during notified peak agricultural seasons, when there is high labour demand for sowing and harvesting. States will be required to notify in advance 60 days in a financial year, covering sowing and harvesting, during which work under the scheme will pause. They will also be able to issue area-specific notifications based on agro-climatic zones and local farm activity patterns. This marks another significant departure from MGNREGS, which is uniformly demand-driven.

What are the criticisms of the bill?

Government officials said the new model would create stronger incentives for states to prevent misuse and ensure better outcomes on the ground. But opposition parties and civil society groups such as NREGA Sangharsh Morcha said the bill would reduce the guaranteed rural employment scheme to a centralised, discretionary, and budget-capped programme.

The pre-determined state-wise allocation would effectively cap the number of days of employment that may be provided in each state, civil society organisations said, and any employment demand beyond this would have to be funded by state governments, which could put them under severe financial strain. Poorer states would be disproportionately affected, leading to lower employment generation and distress migration, critics added.

Jean Dreze, an economist and former member of the National Advisory Council (NAC), said, “Under the new bill, all power will be concentrated in the hands of the central government without any corresponding obligation. The central government will hold uncontrolled power to determine in which part of the country the rural employment scheme will work, and where it won’t."

Rajendran Narayanan, associate professor at Azim Premji University, said, “The new 60:40 funding pattern will put additional financial burden on states which are already undergoing stress," he said.

To express its opposition, NREGA Sangharsh Morcha has declared a nationwide ‘day of action’; on 19 December, when rural and agricultural workers across India will stage protests against the bill.

How have India's job-guarantee schemes evolved?

Early job-guarantee initiatives included the Rural Manpower Programme of the 1960s and the Crash Scheme for Rural Employment in 1971. During the 1980s, the government launched the National Rural Employment Programme and the Rural Landless Employment Guarantee Programme, which were merged with the Jawahar Rozgar Yojana in 1993 and consolidated into the Sampoorna Grameen Rozgar Yojana in 1999.

Alongside these, the Employment Assurance Scheme was introduced in 1993 to provide wage employment during lean agricultural periods. The Food for Work Programme, started in 1977-78 and expanded as the National Food for Work Programme in 2004, offered food grains as wages for manual labour on public works, with a focus on aspirational districts to address both employment and food security.

Although these schemes provided partial support to rural households, their reach and funding were insufficient to tackle India’s widespread rural unemployment and poverty.

Then, in 2005, the Mahatma Gandhi National Rural Employment Guarantee Act was enacted, establishing a statutory framework to ensure employment generation in rural areas. The Mahatma Gandhi National Rural Employment Guarantee Scheme it birthed went on to become India’s most successful job-guarantee programme ever.