Assessing the Impact of NREGA: Successes and Challenges

Few pieces of legislation have shaped rural India’s economic and social fabric as profoundly as the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), enacted in 2005 under the Ministry of Rural Development. By legally guaranteeing at least 100 days of unskilled manual work per year to any rural household that demands it, the Act transformed employment from a favour dispensed by the state into a justiciable right. Nearly two decades on, the picture that emerges is complicated – a programme of genuine, large-scale achievement that is simultaneously burdened by structural failures it has never managed to fully shake off.

What MGNREGA set out to do
The scale of achievement
Financial inclusion and banking access
Inclusion of marginalised communities
Where MGNREGA falls short
Chronic wage payment delays
Corruption and ghost entries
The Aadhaar-based payment system problem
Underutilisation of rural development potential
The path forward: transparency, accountability, and community ownership

What MGNREGA set out to do

The central promise of MGNREGA is straightforward: any adult member of a rural household willing to do unskilled manual work at the statutory minimum wage can walk up to their gram panchayat and demand employment. The state must provide it within 15 days. If it cannot, it owes the worker an unemployment allowance. Works executed under the scheme – ponds, roads, check dams, watershed structures – must generate durable public assets in the process. The scheme is demand-driven by design, meaning the government cannot simply cap spending; it must respond to whatever level of demand arises on the ground.

The scale of achievement

On raw numbers, MGNREGA is hard to dismiss. Around 83.2 million people worked under the scheme in the financial year 2023-24, generating roughly 3.07 billion person-days of employment – a figure 4.42 per cent higher than the previous year. In more than fifteen years of implementation, the Act has generated over 31 billion person-days of employment in total, with government expenditure crossing ₹6.4 lakh crore. Even when the pandemic-era peak of FY 2021 is set aside, participation figures have remained well above pre-2005 levels, suggesting that demand for the employment guarantee remains both real and persistent.

The scheme’s role as a crisis buffer was demonstrated most sharply during the COVID-19 pandemic, when over 11.37 crore households availed employment and 289.24 crore person-days of work were generated in a single year as migrant workers returned to villages with no other source of income. For millions of rural households, MGNREGA was simply the only floor between them and destitution.

Financial inclusion and banking access

One underappreciated consequence of the scheme has been its effect on formal financial inclusion. Wages are paid directly to bank or post office accounts, which has pushed large sections of rural India – particularly women and marginalised communities – into the formal banking system for the first time. Research using nationally representative data found that MGNREGA reduced the size of outstanding debts for vulnerable rural households, indicating that the regular income stream improved households’ ability to repay loans and reduced their dependence on exploitative informal credit.

Inclusion of marginalised communities

The scheme’s design actively favours historically excluded groups. It mandates that at least one-third of workers must be women, and the same wage must be paid regardless of gender. Women’s share in total person-days climbed from 40.65% in 2006-07 to nearly 48% by 2008-09, consistently exceeding the statutory minimum. By FY 2023-24, women’s participation had reached 58.9% of total person-days. Scheduled Caste and Scheduled Tribe participation has also remained significant. According to the Ministry of Rural Development’s own impact assessment, SC, ST and women workers benefit from and are included in MGNREGA plans in ways that are a meaningful indicator of poverty alleviation.

Where MGNREGA falls short

The achievements above are real, but they exist alongside a set of persistent implementation failures that have prevented the scheme from reaching anything like its full potential. The most serious of these is also the most basic: workers are regularly not paid on time.

Chronic wage payment delays

MGNREGA mandates wage payment within 15 days of work completion. The reality is dramatically different. A study analysing over 90 lakh wage transactions across 10 states for FY 2016-17 found that only 21% of payments were made on time, and the central government alone was taking an average of over 50 days to electronically transfer wages. More recent data is no less alarming. A study in the Indian Journal of Labour Economics analysing 31.36 million wage transactions in 2021-22 found that the government owes ₹39 crore in unpaid delay compensation to MGNREGA workers. As of 2024-25, total pending wages under the scheme stand at ₹974.38 crore, and the scheme is running a net financial balance of negative ₹18,361 crore – meaning workers have already worked but are yet to be paid.

A key structural cause is inadequate budget allocation. Economists working on rural employment have recommended a minimum annual allocation of ₹2.64 lakh crore for MGNREGA, and the World Bank has suggested earmarking 1.7% of GDP. The actual allocation for FY 2024-25 is just ₹86,000 crore – approximately 0.26% of GDP. When funds run dry mid-year, states cannot initiate new works even if workers demand them, and payment of wages for completed work is deferred.

Corruption and ghost entries

Corruption in MGNREGA has taken several forms: inflated muster rolls, payments to fictitious workers, contractors acting as middlemen, and local functionaries siphoning wages. MGNREGA has historically been susceptible to manipulation at multiple levels, including fake job cards created to siphon public funds and middlemen collecting wages on behalf of actual workers. The problem is compounded by an excessive reliance on Management Information Systems (MIS) that have made the scheme less transparent for workers while aiding centralisation, and producing data that often diverges from ground reality.

Social audits – mandated under Section 17 of the Act – are the primary institutional mechanism to check corruption. But their coverage is far from universal. Out of 34 states and union territories, only 6 have completed social audits in more than 50% of gram panchayats, with Kerala alone achieving 100% coverage. In many states, social audit teams face threats, harassment, and pressure to submit falsified reports, which severely limits the accountability function these audits are supposed to provide.

The Aadhaar-based payment system problem

In an effort to eliminate ghost payments, the government made the Aadhaar-Based Payment System (ABPS) mandatory for MGNREGA wages. The intent was sound. The implementation has caused serious harm. When ABPS was made mandatory in January 2024, only 43% of MGNREGA workers were actually eligible for it. Workers whose Aadhaar details did not match bank records – often due to minor spelling errors or outdated demographic data – found themselves either deleted from job card rolls or simply unable to receive wages. A LibTech India analysis found that between April and September 2024, there was a net loss of 39 lakh workers from MGNREGA rolls, with a 16.6% drop in person-days generated compared to the same period the previous year. A significant portion of these deletions were erroneous, and reinstating affected workers has been slow and bureaucratically cumbersome.

Underutilisation of rural development potential

Beyond the employment guarantee itself, MGNREGA was designed to create durable rural assets – water conservation structures, roads, land development, afforestation. Since 2006, over 30 million water conservation-related assets have been created under the scheme, averaging around 50 water-related structures per village. However, concerns about the quality of assets and the irregularity of project inspections have meant that the scheme’s potential as a driver of rural infrastructure and agricultural productivity remains significantly unrealised. Works are often poorly planned at the gram panchayat level, and the 60:40 wage-to-material cost ratio built into the Act sometimes constrains the type of projects that can be taken up.

The path forward: transparency, accountability, and community ownership

The diagnosis for improving MGNREGA is well-established in the academic and policy literature, even if implementation remains elusive. Three areas stand out.

First, adequate and predictable budget allocation is the single most important structural fix. Wage delays, work rationing, and state-level fund shortfalls all trace back to insufficient central funding. The existing budget allocation needs to be brought significantly closer to what actual demand-driven implementation would require.

Second, strengthening social audits and grievance redressal is essential to restoring trust. Social audits need adequate independent funding, protection for audit teams, and mechanisms to actually act on findings. The Ombudsperson App launched in February 2022 for grievance reporting under MGNREGS is a step in the right direction, but its reach and effectiveness need to be monitored closely.

Third, digital interventions must be designed with workers at the centre. The ABPS experience illustrates that technology that is poorly calibrated to rural realities – unreliable biometric records, low connectivity, limited banking infrastructure – can end up excluding the very people the scheme is meant to serve. Any digital reform must be accompanied by grievance mechanisms, alternatives for those who cannot comply, and independent audits of its impact on access.

Ultimately, MGNREGA’s record is not binary. It is neither the unqualified success its proponents claim nor the bureaucratic quagmire its critics describe. It is a rights-based programme of genuine importance to rural India’s poorest households – one whose full potential has never been realised, largely because the political and administrative commitment required to deliver it at scale has rarely been consistent enough, or adequately funded, to match the scale of the guarantee it promises.

What do you think? If MGNREGA is structurally designed to be demand-driven but is persistently underfunded, does that make the employment guarantee effectively illusory for rural workers who cannot get work during fund shortfalls? And given that social audits remain incomplete in most states, is community participation in MGNREGA a genuine accountability mechanism or largely a formal requirement on paper?

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Table of Contents

What MGNREGA set out to do 🔗

The scale of achievement 🔗

Financial inclusion and banking access 🔗

Inclusion of marginalised communities 🔗

Where MGNREGA falls short 🔗

Chronic wage payment delays 🔗

Corruption and ghost entries 🔗

The Aadhaar-based payment system problem 🔗

Underutilisation of rural development potential 🔗

The path forward: transparency, accountability, and community ownership 🔗