India’s 125-day jobs guarantee will be tested when states run short of funds

The extra 25 days in India’s proposed rural jobs guarantee are worth having. The more consequential change is who pays for the next day of work after a state exhausts its central allocation. Parliament has now passed the Viksit Bharat Guarantee for Rozgar and Ajeevika Mission (Gramin) Bill, which would replace MGNREGA and raise the annual entitlement from 100 to 125 days per rural household. The Bill retains an entitlement to work and an unemployment allowance in specified circumstances. It also changes how the Centre and states finance the programme. Unless the funding rules can respond to a local shock, some of the districts that most need the extra work could face the greatest difficulty providing it. Bill text and financial memorandum · NDTV, 19 December · MGNREGA, section 22

The household’s right and the state’s budget have different limits

Under MGNREGA, the Centre bears the wages for unskilled manual work and up to three-fourths of the material component, which includes the wages of skilled and semi-skilled workers. States bear their share of materials and pay any unemployment allowance due. Under the Bill, the Centre and most states would share programme expenditure within the normative allocation in a 60:40 ratio. The ratio would be 90:10 for the specified north-eastern and Himalayan jurisdictions. The Centre would determine a normative allocation for each state each financial year under rules yet to be prescribed. The state would bear spending above its allocation. The allocation governs who pays. The separate employment entitlement governs what households can claim. MGNREGA, section 22 · Bill text and financial memorandum

Consider a state in the 60:40 group with ₹100 crore of eligible spending within its allocation. It would put up ₹40 crore. If another ₹20 crore of demand comes in and all of it falls above the allocation, the state would pay the full ₹20 crore, raising its total contribution to ₹60 crore. Had that same additional spending qualified for matching funds, the extra state contribution would have been ₹8 crore. The allocation boundary therefore raises the marginal state cost of a rupee of eligible work from 40 paise to one rupee. This simplified example leaves out unemployment allowances and administrative adjustments. The actual amounts depend on the rules and the composition of spending. Bill text and financial memorandum

The Bill’s financial memorandum estimates a nationwide annual requirement of ₹1,51,282 crore for wages, materials and administration, with a central share of about ₹95,692 crore. For comparison, the existing scheme’s Union budget estimate for 2025–26 is ₹86,000 crore. The difference is about ₹9,692 crore in central terms. The two figures have different statuses. One is a nationwide estimate in a legislative memorandum and the other is a budget allocation for the existing scheme. Neither tells us how much money will be available to a particular district in a drought. For that, the allocation formula and the timing of releases matter. Bill text and financial memorandum · Rural Development Ministry’s budget figures

An employment guarantee earns its keep in a bad year

The programme provides insurance because families can ask for work when private incomes fall. A drought can cut days of farm work and increase the number of households seeking public work in the same district. Under the new financing design, the cost of providing additional days can rise sharply just as the state faces other drought-related expenses. A state may still fund the work. It may also postpone project approvals or run out of sanctioned works in the blocks under most pressure. An entitlement that depends on the timing of a supplementary state budget is less valuable to a family that needs income this month. Bill text and financial memorandum

Administrative records cannot show all the work people wanted. The Rural Development Ministry reports 290.60 crore person-days under MGNREGA in FY2024–25 and puts women’s participation at 58.15%. The scale makes implementation at the panchayat level consequential. An offer recorded against a household’s application reveals little about how many days it received, whether the site was reachable or whether it could afford to wait for payment. And if people stop applying after being turned away informally, registered demand can fall while hardship rises. The Bill provides for an allowance where work is unavailable within 15 days under the applicable conditions. A dated receipt for a work request is what lets a worker establish when that clock started. Rural Development Ministry’s FY2024–25 figures · Bill text and financial memorandum

Women and households without land may have fewer options when local work is unavailable. A worker who can travel for seasonal employment can look farther afield. A worker who must stay near home to care for children or older relatives has a narrower choice. In a randomised evaluation of improvements to the public employment programme in Andhra Pradesh, Karthik Muralidharan, Paul Niehaus and Sandip Sukhtankar found gains in private-sector wages and employment that accounted for most of the income gains. That result applies to the reform and labour markets studied. It illustrates why a credible public-work option can affect the terms of private work as well as the incomes of people on a government muster roll. Muralidharan, Niehaus and Sukhtankar, Econometrica

The case for cost sharing is strongest when it improves project selection

A credible argument for state co-financing is that states and panchayats choose much of the work and should face some of its cost. If a project produces little of lasting value, a funding rule that puts nearly all of the wage cost elsewhere can weaken the incentive to choose a better one. The Bill prioritises categories such as water security and resilience to extreme weather. A village that builds and maintains a useful water-harvesting structure gets income support today and a potentially more productive farm economy later. Predictable annual allocations can help panchayats plan those works and buy materials in advance. That case is strongest when transfers reward useful completed assets and well-documented demand. Shifting the full cost to a state at the allocation boundary does little by itself to distinguish good projects from bad ones. Bill text and financial memorandum · Rural Development Ministry’s introduction of the Bill · The Indian Express analysis of the Bill

There is a similar trade-off in the Bill’s requirement that states designate a total of 60 days for peak sowing and harvesting when scheme work will pause. Farmers have a legitimate interest in finding labour when delaying a harvest would destroy value. A calendar that fits one crop or district can still close the public option in another place where work is scarce. It can also weaken workers’ bargaining position during the period when farmers most need them. The Bill provides for geographic differentiation in the notifications. Fine-grained calendars and a usable route to revise them when the rains move would matter more than administrative uniformity. Bill text and financial memorandum · The Indian Express analysis of the Bill

Make the funding rule respond to the same shocks as the guarantee

The Centre could start with an allocation formula that incorporates rural population, poverty and exposure to agricultural shocks, as well as past work. A formula built mainly on historical spending risks rewarding states that already had the staff, project pipeline and payment systems to turn requests into work. It can then give less to states where low spending reflected poor access in the first place. The Bill allows the Centre to consider relaxations on a state’s recommendation in cases of natural calamity and extraordinary circumstances. Published triggers for supplementary financing, linked for example to notified drought and a documented jump in work requests, would give states a clearer basis for preparing projects before their regular allocation runs out. Bill text and financial memorandum

The test is what happens after a bad harvest. Report work requested, offered and actually worked by block and month, along with the time from request to assignment, the time from work to payment and unemployment allowances due and paid. Compare districts with similar weather shocks before and after the change, paying particular attention to states nearing their allocations. Independent household surveys can check for unregistered demand. If work expands in distressed districts and workers are paid promptly without a rise in low-value projects, the case for the new model strengthens. If demand rises while days worked stall at funding boundaries, a higher statutory entitlement will have been undermined by the financing rule.