Whalesbook
India's rural employment landscape is set for a major overhaul on July 1, 2025, with the Viksit Bharat Act replacing the 20-year-old MGNREGA. The new law increases the guaranteed workdays to 125 annually from 100, but its most significant changes involve how costs are shared and its expanded role in rural development.
States Face New Funding Demands
A key change is that state governments will now directly cover the costs of unemployment allowances, a significant departure from MGNREGA. The act also revises how program costs are shared. While northeastern and Himalayan states get more central support and Union Territories without legislatures will be fully funded by the center, general areas will see central funding drop from 90% to 60%. This means states must cover a larger share of program expenses, potentially straining their budgets and leading them to cut back on approving projects, which could limit job availability.
Program Scope Widens Beyond Jobs
The act's scope extends beyond just jobs to cover broader rural development planning. Projects will be planned through Viksit Gram Panchayat Plans (VGPPs) and must fit categories like water security, infrastructure, livelihoods, and climate resilience. It aims to link with other government programs and will pause employment during busy farming times to help with farm labor shortages. The focus is also on creating lasting rural assets, fitting with the Viksit Bharat 2047 vision. Implementation will use stricter digital attendance, more transparency, public disclosures, and worksite information boards.
Concerns Over Rights and Federal Balance
The law's passage faced criticism, with some calling the legislative process rushed. Critics, including opposition parties and policy analysts, believe the reforms might weaken the 'right to work'. They argue the shift from an open-ended, demand-driven program to a more controlled one dilutes its main strength. There are also concerns that the Union government is centralizing power and weakening India's federal system, as states get bigger financial duties without matching control. MGNREGA previously struggled with underfunding and payment delays, issues that could worsen with states taking on more funding responsibility.
Economic Impact and Legacy
The government states these changes will fix MGNREGA's flaws and align better with the Viksit Bharat 2047 goals for improved planning and efficiency. However, MGNREGA has a significant legacy, credited with cutting rural poverty, raising incomes, boosting wages, and empowering communities. Moving away from its rights-based, demand-driven approach could endanger these gains, especially if states struggle with the new funding demands. The economic effects could include impacts on rural spending, inflation, and overall stability, areas where MGNREGA previously offered a buffer. The success of the Viksit Bharat Act will depend on states' ability to handle higher costs while meeting the program's broader goals, a key aspect of India's changing fiscal balance.