There has been a heated debate in the past few months on the merits of the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) and the Viksit Bharat – Guarantee for Rozgar and Ajeevika Mission Act (Gramin) Act, or VB-G RAM G Act for short. Absent from these discussions, however, is a critical issue that concerns both Acts: wage rates.
An important parameter
The wage rate is an important parameter of job security. Relatively high wages can create a lot of enthusiasm among workers, as happened in the early days of MGNREGA. Also, enthusiasm is essential to the success of the program. On the other hand, wage pressure can easily be used to block the program or even terminate it later. Salary rates, in any case, also have a strong influence on program costs.
The wage rates of MGNREGA workers are fixed under Section 6 of the Act. This section has two parts. The first section, Section 6(1), empowers the central government to notify MGNREGA wage rates. Different rates can be introduced in different “regions”, and of course, this means different countries.
Section 6(2) states that until such time as the central government notifies the wage rates under Section 6(1), the special minimum wages of the State shall apply. Accordingly, MGNREGA workers are entitled to the minimum wage notified by the State government for agricultural workers.
MGNREGA came into effect on February 2, 2006. Until 2009, the central government refused to notify wages under Section 6(1). Therefore, State specific minimum wages have been used. In many countries, minimum wages for agricultural workers were higher than market wages at the time. This is another reason why MGNREGA was so popular in those days.
In other states, there was a significant increase in the minimum wage between 2006 and 2009. The most notable example was the sharp increase in the minimum wage in Uttar Pradesh in 2007-8 (when Mrs. Mayawati was the Chief Minister), from ₹ 58 to ₹ 100 per day. Some observers argued that State governments were complicit in the unrestricted increase in minimum wages because MGNREGA benefits were fully paid by the central government. Others objected that the governments of the States must pay the same salary in their public works, and that this would be a hindrance. They also argue that, with the exception of Uttar Pradesh, there is little evidence of a sharp increase in the minimum wage.
The court was still on the issue when, in late 2009, the central government pressed the panic button and notified MGNREGA wage rates under Section 6(1). In the short term, this led to another increase in wages, as the central government introduced ₹ 100 per day in many states, especially in states where the minimum wage was above that norm. This was marketed as a measure of labor productivity, based on the promise made by the Congress Party during the 2009 general elections. However, over time, this move helped the central government to limit the growth of MGNREGA income. In fact, the central government has stopped MGNREGA benefits since then. To this day, wages are raised State-wise every year to the extent of the increase in prices (based on the Consumer Price Index for Agricultural Workers), but not more.
Consequences of real wage freezes
This suspension of real wages quickly led to two serious issues. First, MGNREGA wages initially lagged behind the minimum wages in many countries, as minimum wages rose in real terms but MGNREGA wages did not. By 2025-26, the MGNREGA wage rate was lower – often much lower – than the minimum wage for agricultural workers in many countries, according to a recent analysis by Laavanya Tamang. This defeats the main objective of MGNREGA: to maintain low wages. It also raises the question of whether it is at all legal for the government to pay MGNREGA workers less than the minimum wage (this issue was taken to the Supreme Court of India but was not clearly resolved).
Another issue is that the MGNREGA income also initially lagged behind the market income. Between 2009 and 2014, real wages rose rapidly in rural India, in part because MGNREGA tightened the labor market. In 2014, the ratio of the MGNREGA wage rate to agricultural wages was about 60% for men and 75% for women across India, according to Labor Bureau data. The gap maintained itself from then on, as rural rates fell in real terms.
The real gap is actually bigger than it seems. This is because market wages are not only higher than MGNREGA wages but are also (generally) paid on time – often the same day. On the other hand, MGNREGA benefits are often paid after long and erratic delays. Central government consistently denies this, but the evidence is clear, especially from recent studies by the LibTech group. In fact, there are not only delays, sometimes, MGNREGA benefits are not paid at all, for example due to the technical failure of the Aadhaar-based Payment System or the National Mobile Monitoring System. The result is a huge “disheartening effect” – many rural workers have lost interest in MGNREGA.
The absence of any clear decline in MGNREGA job creation levels would seem to contradict this. A recent analysis of data from the Periodic Labor Force Survey, however, suggests that MGNREGA employment levels are much lower today than they were in the early years of the all-India implementation, contrary to official statistics. The widening gap between official statistics and actual employment appears to indicate a significant increase in leakages over the same period.
The effect of discouragement and resumption of corruption are closely related. When employees lose interest, there is no vigilance. Worse, employees may be tempted to cooperate with corrupt people rather than comply with the rules.
Continued strategic failure
Unfortunately, the VB-G RAM G Act aims to perpetuate this crisis. Among other things, it does not contain any new, constructive provisions that might help ensure the timely payment of salaries or prevent corruption. For one, it continues to empower the central government to collect income tax (under Section 10), although the rationale for this has disappeared.
Remember, the argument for the quick shift from Section 6(2) to Section 6(1) under MGNREGA was that, when the wages are fully paid by the central government, they should not be determined by the State government. Under the VB-G RAM G Act, however, the salary costs are shared 60:40 between the Center and the States. There was every reason to drop Section 6(1) of MGNREGA in the VB-G RAM G Act and return to the principle of Section 6(2): guaranteed payment of minimum wages. Instead, the central government did the opposite: it dropped Section 6 (2) and retained Section 6 (1), giving itself unlimited power to set wage rates for VB-G RAM G workers.
There is another issue here. Section 6(1) of MGNREGA started with an ambiguous clause (“Notwithstanding anything contained in the Minimum Wages Act, 1948”) which served as a kind of legal fig leaf for passing minimum wages. Surprisingly, there is no equivalent to this clause in the VB-G RAM G Act. But then, how can the central government justify paying anything less than the minimum wage?
The way forward would be for the central government to introduce wage rates equal to or higher than the minimum wages in all states (under MGNREGA or VB-G RAM G Act, as the case may be). This would feed many birds with one crumb. It would put wage payments on a reasonable legal footing. It would lead to a much-needed increase in real wages. Also, it would introduce a simple rule to update wage rates over time.
It is likely that the central government will extend the freeze on real wages and use it as a means to ensure that job creation under the VB-G RAM G Act decreases over time. If so, the wage freeze should be challenged in court. Indeed, with the exception of the uncertainty clause, the payment of anything less than the minimum wage is illegal.
Jean Drèze is Visiting Professor in the Department of Economics, Ranchi University, Ranchi, Jharkhand.
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