MGNREGA to VB-GRAM JI – A Hurried Law With Structural Flaws on Ground

The Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), which for nearly two decades formed the backbone of India’s rural employment policy, has now been replaced by the Viksit Bharat Rozgar Aur Ajeevika Mission (Gramin) Guarantee Adhiniyam, 2025 — popularly known as the VB-GRAM JI Act. The new law will come into force across all states and Union Territories from July 1, 2026, formally repealing MGNREGA.

While introducing the Bill in Parliament, Union Rural Development Minister Shivraj Singh Chouhan stated that the objective behind the new legislation was to correct the structural flaws in MGNREGA and transform it into a modern, implementable, and integrated employment guarantee framework.

Yet the most consequential and troubling feature of the new law is the quiet dismantling of the rights-based guarantee that assured rural households 100 days of unskilled employment. According to many experts, MGNREGA was not merely a welfare scheme fulfilling the constitutional vision of the right to work embedded in the Directive Principles; it was also an important instrument for strengthening rural livelihoods. Critics, however, long argued that the scheme resulted in avoidable wasteful expenditure.

The Congress has already announced that it will oppose the new law and demand the restoration of MGNREGA. Opposition parties strongly objected in Parliament to provisions that convert the programme into a supply-driven scheme and impose a 40 percent expenditure burden on states, triggering uproar in both Houses.

A Law Passed in Extraordinary Haste

Before examining the substantive provisions of the law, it is important to scrutinise the manner in which it was passed. The Lok Sabha approved the Bill on December 16, 2025, and presidential assent followed within just three days. Such haste is astonishing given the far-reaching economic and administrative consequences of the legislation.

The lack of consultation with state governments is particularly concerning, since states bear the primary responsibility for implementing employment guarantee programmes. No formal consultation preceded the introduction of the Bill, raising serious questions about the Union government’s commitment to cooperative federalism. Although the Rural Development Minister later claimed that extensive consultations had taken place, no public record of such consultations has been produced. Equally troubling is the fact that the Bill was not referred to a Standing Committee or Joint Parliamentary Committee — a long-standing convention for major legislative reforms.

From Rights-Based Guarantee to Allocation-Based Scheme

Critics argue that the new law effectively converts a statutory employment guarantee into a centrally sponsored scheme devoid of any enforceable legal guarantee. Their concerns arise from six key provisions.

Section 4(5) transforms the statutory guarantee under MGNREGA into an annually allocated centrally sponsored scheme, giving the Union government authority to determine state-wise allocations each year. Section 5(1) empowers the Centre to notify the rural areas where the guarantee will apply, effectively ending the universal eligibility that defined MGNREGA. Section 22(2) increases the states’ share of expenditure from 10 percent to 40 percent, although north-eastern and Himalayan states will continue under the 90:10 ratio. Section 22(4) replaces MGNREGA’s open-ended funding mechanism with standard allocations determined by the Centre.

Critics contend that these provisions fundamentally alter the character of the programme, converting a rights-based, demand-driven entitlement into a supply-constrained, allocation-based scheme. The new law also removes the provision for year-round employment in response to local demand. Under Sections 6(1) and 6(2), employment will be restricted to only 60 days during the peak agricultural season.

It is true that not all these provisions are entirely unprecedented. For example, the Centre’s authority to notify eligible areas under Section 5(1) is almost a verbatim reproduction of Section 3(1) of MGNREGA. However, under the original Act, this provision existed only for phased implementation, with the explicit understanding that the entire country would be covered within five years. The VB-GRAM JI Act contains no such commitment to universal coverage within a defined timeline.

The concern that employment guarantee under the new law may cease to be universal is therefore not unfounded. In the absence of publicly declared criteria for selecting eligible areas, the law offers little protection against arbitrary or politically motivated exclusions.

The legislation also caps states’ entitlements through standard allocations determined by the Centre. This appears to be an attempt to correct one of MGNREGA’s long-standing flaws — the tendency of expenditure to disproportionately favour states with relatively lower rural poverty. Studies have shown that expenditure patterns often reflected states’ administrative capacity to generate and process demand rather than the actual incidence of poverty.

However, this imbalance was not merely a financial issue; it also stemmed from weak administrative capacity in poorer states. Unless sustained investments are made to strengthen local governance and administrative systems, standard allocations alone are unlikely to improve outcomes. Wealthier states may see reduced allocations, while poorer states may still struggle to utilise their increased shares. The likely result could be an overall decline in both employment coverage and expenditure.

Fiscal Burden and the Federalism Question

The increase in the states’ expenditure burden from 10 percent to 40 percent poses an even greater challenge. For many large states in western and southern India, this amounts to a double blow — lower central allocations combined with a substantially heavier fiscal burden.

Estimates suggest that had the 60:40 cost-sharing formula been applied in the financial year 2025, states would collectively have borne an additional burden of nearly ₹31,000 crore. Uttar Pradesh alone would have contributed an additional ₹4,230 crore, while Andhra Pradesh and Tamil Nadu would each have paid over ₹3,000 crore more. Bihar and Madhya Pradesh, too, would each have faced an additional burden exceeding ₹2,500 crore.

Imposing such enormous financial obligations without prior consultation is difficult to justify.

At the same time, states may find it difficult to reject the new formula outright, considering that many are already spending heavily on direct benefit schemes such as unconditional cash transfers to women. According to PRS India, 12 states together allocated ₹1.68 lakh crore in 2026 for women-centric cash transfer schemes. Bihar, too, spent ₹2,500 crore on its “Das Hazari” scheme ahead of the recently concluded Assembly elections.

Another important question concerns the mandatory suspension of the programme during the busiest agricultural months. During the drafting of the 2005 Act, a similar provision from the Maharashtra Employment Guarantee Act, 1977, was considered and rejected after extensive deliberation. Policymakers then recognised that the availability of a public employment alternative during crop seasons acted as a crucial bargaining mechanism for agricultural labourers, helping ensure payment of at least statutory minimum wages.

Economist Karthik Muralidharan, in his 2024 book Accelerating India’s Development, argued that MGNREGA’s greatest impact lay not merely in the wages earned by MGNREGA workers themselves, but in the indirect increase in rural wages more broadly. Removing this alternative could leave labour-dependent households vulnerable to the monopsonistic power of large landowners.

Moreover, the evidence suggesting that MGNREGA seriously disrupted agricultural labour supply remains inconclusive. Peak sowing and harvesting months account for only about 15 percent of total MGNREGA person-days. A blanket two-month suspension was therefore neither necessary nor prudent.

Reform, Symbolism, and Ground Reality

The government has nonetheless highlighted several positive features of the new law. The guaranteed employment ceiling has been raised from 100 to 125 days per household. Works have been categorised into four broad themes — water security, basic rural infrastructure, livelihood-related assets, and climate-disaster protection. Additional provisions seek to direct more resources toward states with higher rural poverty. Rules regarding unemployment allowance and delayed wage payments have also been tightened.

The mandatory use of digital tools — including biometric authentication, geospatial planning, mobile applications, dashboards, and AI-based fraud detection systems — has been expanded significantly.

Some of these reforms are meaningful; others appear largely symbolic. The increase in guaranteed employment from 100 to 125 days is perhaps the clearest example. Comptroller and Auditor General (CAG) audits consistently show that actual employment generation under MGNREGA remained far below the legal guarantee. Average employment generation between 2007 and 2025 ranged between 46 and 50 days annually, while studies found that only 7 to 12 percent of households actually received the full 100 days of work.

Under these circumstances, merely increasing the ceiling to 125 days is unlikely to substantially improve outcomes.

Similarly, reorganising permissible works into thematic categories may improve administrative clarity, but it is unlikely to transform implementation quality on its own. Whether the stated outcomes materialise will depend less on legislative drafting and more on administrative execution.

Some reforms, however, are genuinely welcome. The removal of disqualification conditions for unemployment allowance and the introduction of parallel evaluation mechanisms could strengthen accountability.

The mandatory digitisation of implementation processes remains far more contentious. Many of these systems are already operational through executive orders. Activists and field researchers have repeatedly raised concerns about the National Mobile Monitoring System (NMMS) app used for attendance verification. Digital tools can undoubtedly improve transparency, but only if adequate safeguards ensure that workers without reliable digital access are not excluded from the system.

Structural Weaknesses That Remain Unresolved

Critics of MGNREGA have long pointed to four major structural weaknesses repeatedly flagged by the Comptroller and Auditor General: the poor performance of Bihar, Maharashtra, and Uttar Pradesh despite accounting for a large share of rural poverty; concerns over the quality of assets created; chronic wage delays; and corruption through fake job cards, inflated measurements, and unauthorised use of machinery.

The new law attempts to address some of these concerns through standard allocations and technology-driven monitoring. Yet without sustained administrative reforms, these measures alone may not suffice.

Concerns regarding asset quality are also often overstated. A 2018 study by the Institute of Economic Growth, based on fieldwork across 30 districts in 21 states, found that 76 percent of surveyed households rated the assets created under MGNREGA as “good” or “very good”, while only 0.5 percent considered them unsatisfactory.

On delayed wage payments, the new law incorporates provisions mandating payment within 15 days — essentially giving statutory backing to existing Ministry of Rural Development guidelines. Whether codifying these provisions without altering the underlying administrative bottlenecks will actually reduce delays remains uncertain.

The law also relies heavily on technology-driven monitoring and social audits to curb corruption and leakages. Yet experience urges caution. Despite its conceptual strength, social audit mechanisms have never been implemented uniformly across all states, and their effectiveness has remained uneven.

Beyond these implementation concerns lies a more fundamental question: should rural livelihood security in Viksit Bharat@2047 continue to depend primarily on unskilled manual labour?

Viewed from this perspective, the VB-GRAM JI Act appears insufficiently forward-looking. It pays little attention to the growing employment potential of the rural services sector, particularly the care economy. Expanding creches to enable women’s workforce participation, training caregivers for an ageing rural population, and investing in systematic skill development to enhance productivity are equally essential components of rural employment generation.

A truly reimagined employment guarantee framework could have incorporated these emerging forms of labour into its ambit. The failure to do so represents one of the biggest missed opportunities in the current reform — and it deserves far greater attention in the national debate surrounding the VB-GRAM JI Act.

The writer may be contacted at his email ID vikasmeshram04@gmail.com