A Missed Opportunity to Guarantee Minimum Wages, Why India’s New Rural Employment Law Falls Short
As the VB-G RAM G Act Replaces MGNREGA, a Critical Issue Remains Unresolved: Wage Rates. The New Law Perpetuates the Real-Wage Freeze and Gives the Centre Perpetual Powers to Set Wages—Potentially at Less Than Minimum Wage
There has been a lively debate in the last few months about the respective merits of the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) and the Viksit Bharat – Guarantee for Rozgar and Ajeevika Mission (Gramin) Act, or VB-G RAM G Act for short. Absent from this debate, however, is a critical issue that haunts both Acts: wage rates. The wage rate is a critical parameter of employment guarantee. A relatively high wage rate can create a lot of enthusiasm among workers, as it happened in the early days of MGNREGA. And enthusiasm is important for the success of the programme. Conversely, wage suppression can easily be used to restrain the programme or even phase it out over time.
The new VB-G RAM G Act was presented as an improvement over MGNREGA—a more modern, technology-enabled, and efficient version of rural employment guarantee. But when it comes to the most fundamental aspect of any employment programme—how much workers are paid—the new Act represents a continuation of the same flawed approach that has gradually eroded the effectiveness of MGNREGA over the past decade and a half.
The Legal Framework for Wage Determination
The wage rates of MGNREGA workers are determined under Section 6 of the Act. This section has two parts. The first part, Section 6(1), empowers the central government to notify MGNREGA wage rates. Different rates can be notified for different “areas”, and in practice, this has come to mean different States. Section 6(2) states that until such time as the central government notifies wage rates under Section 6(1), State-specific minimum wages apply. More precisely, MGNREGA workers are entitled to the minimum wage notified by the State government for agricultural labourers.
MGNREGA came into force on February 2, 2006. Until 2009, the central government abstained from notifying wage rates under Section 6(1). Therefore, State-specific minimum wages applied. In many States, minimum wages for agricultural labourers were higher than market wages at that time. This is one reason why MGNREGA was so popular in those days. Workers flocked to the programme because it offered better wages than they could get elsewhere.
In some States, there were significant increases in minimum wages between 2006 and 2009. The most notable instance was a sharp increase in the minimum wage in Uttar Pradesh in 2007-08 (when Ms. Mayawati was Chief Minister), from ₹58 to ₹100 per day. Some observers argued that State governments were indulging in unrestrained increases in minimum wages because MGNREGA wages were fully paid by the central government. Others countered that State governments had to pay the same wage on their own public works, and that this would be a restraining factor. They also argued that, except in Uttar Pradesh, there was little evidence of sharp increases in minimum wages.
The 2009 Turning Point
The jury was still out on this 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 a further increase in wages, as the central government notified ₹100 per day in most States, with a top-up in States where the minimum wage was above that norm. This was sold as a pro-worker move, in pursuance of a promise made by the Congress Party in the run-up to the 2009 general election.
Over time, however, this move enabled the central government to moderate the growth of MGNREGA wages. In fact, the central government froze MGNREGA wages in real terms from then on. To this day, wages are raised State-wise every year to the extent of price increases (based on the Consumer Price Index for Agricultural Labourers), but not more. This means that the real value of MGNREGA wages—their purchasing power—has remained stagnant for over 15 years.
The Consequences of the Real-Wage Freeze
This real-wage freeze rapidly led to two serious issues. First, MGNREGA wages started lagging behind minimum wages in many States, 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 of agricultural labourers in most States, according to a recent analysis by Laavanya Tamang. This defeats an important purpose of MGNREGA: sustaining minimum wages. It also raises the question whether it is at all legal for the government to pay MGNREGA workers less than the minimum wage (this matter was taken up in the Supreme Court of India but was not clearly settled).
The second issue is that MGNREGA wages also started lagging behind market wages. Between 2009 and 2014, real wages were rising quite rapidly in rural India, partly because MGNREGA was tightening the labour market. By 2014, the ratio of MGNREGA wage rate to agricultural wage was around 60 per cent for men and 75 per cent for women at the all-India level, according to Labour Bureau data. The gap maintained itself from then on, as rural wage rates stagnated in real terms.
The real gap is actually much bigger than it looks. The reason is that market wages are not only higher than MGNREGA wages but also (generally) paid on time—often the same day. MGNREGA wages, by contrast, are often paid after long and uncertain delays. The central government keeps denying this, but the evidence is clear, notably from recent studies by the LibTech group. In fact, not only are there delays, sometimes MGNREGA wages are not paid at all, for example due to technical failures of the Aadhaar-based Payment System or National Mobile Monitoring System. The result is a tremendous “discouragement effect”—many rural workers have lost interest in MGNREGA.
The Gap Between Official Statistics and Reality
The absence of any marked decline in MGNREGA employment generation levels may seem to contradict this. A recent analysis of Periodic Labour Force Survey data, however, suggests that MGNREGA employment levels are in fact much lower today than they were in the early years of all-India implementation, contrary to official statistics. The growing gap between official statistics and actual employment seems to reflect a major increase in leakages in the same period.
This is a serious indictment. If official statistics cannot be trusted, then policymakers are flying blind. And if leakages have increased, then the programme is not only failing workers but also wasting public money.
The discouragement effect and the resurgence of corruption are integrally related. When workers lose interest, there is no vigilance. Worse, workers may be tempted to cooperate with corrupt elements instead of working by the rules. A worker who has to wait months for payment may be willing to accept a bribe to look the other way when fake muster rolls are created. The erosion of the programme’s integrity feeds on itself.
The VB-G RAM G Act: A Missed Opportunity
Unfortunately, the VB-G RAM G Act is all set to perpetuate this crisis. For one thing, it does not contain any new, constructive provisions that might help to ensure the timely payment of wages or to curb corruption. For another, it continues to empower the central government to determine wage rates (under Section 10), even as the rationale for this has vanished.
Remember, the argument for an early switch from Section 6(2) to Section 6(1) under MGNREGA was that, when 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, wage costs are shared 60:40 between Centre and States. There was every reason to drop MGNREGA’s Section 6(1) from the VB-G RAM G Act and revert 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 perpetual powers to set the wage rates of VB-G RAM G workers.
This is a regressive step. When the funding pattern changes from fully central to shared, the justification for central control over wages disappears. States that are contributing 40 per cent of the wage bill should have a say in what that wage is. By retaining sole power over wage determination, the central government is asserting control without the corresponding financial responsibility.
The Legal Question
There is another issue here. Section 6(1) of MGNREGA began with a non-obstante clause (“Notwithstanding anything contained in the Minimum Wages Act, 1948”) that acted as a kind of legal fig leaf for overriding minimum wages. Oddly, there is no equivalent of this clause in the VB-G RAM G Act. But then, how can the central government justify paying anything less than minimum wages?
This is not an academic question. If the government pays less than the minimum wage, it is violating the Minimum Wages Act. The non-obstante clause in MGNREGA provided a legal defence. Its absence in the VB-G RAM G Act means that the central government would have no defence if challenged in court. The VB-G RAM G Act, as drafted, may be illegal.
A Way Forward
A way forward would be for the central government to notify wage rates equal to or higher than minimum wages in all States (under MGNREGA or the 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 sound legal footing. It would lead to a much-needed increase in real wages. And it would also produce a simple rule for updating wage rates over time.
Such a move would also restore the original purpose of employment guarantee: to provide a safety net that actually protects workers from destitution. When wages are too low, workers cannot rely on the programme. They are forced to take whatever work they can find, at whatever wage, because the alternative is not viable.
Conclusion: A Challenge to the Courts
More likely, the central government will prolong the real-wage freeze and use it as a means of ensuring that employment generation under the VB-G RAM G Act declines over time. If so, the wage freeze should be challenged in court. Indeed, with the non-obstante clause removed, the payment of anything less than minimum wages is patently illegal.
The VB-G RAM G Act was an opportunity to fix what was broken in MGNREGA. Instead, it has perpetuated the most damaging feature of the old law: the central government’s power to set wages below the minimum wage. The result is a missed opportunity that will hurt the rural poor who depend on employment guarantee for their survival. The courts may have to intervene to correct this legislative failure.
Q&A: Unpacking the Wage Crisis in Rural Employment Guarantee
Q1: How are wages determined under MGNREGA, and what changed in 2009?
A: Under MGNREGA, Section 6(2) originally provided that workers were entitled to State-specific minimum wages for agricultural labourers. In 2009, the central government began notifying wages under Section 6(1), taking control away from States. Initially this increased wages, but over time the central government froze real wages, raising them only by inflation each year. This meant that MGNREGA wages stopped rising in real terms, while minimum wages in many States continued to increase.
Q2: What have been the consequences of the real-wage freeze?
A: Two serious consequences emerged. First, MGNREGA wages fell below State minimum wages in most States by 2025-26, defeating the purpose of sustaining minimum wages and raising legal questions. Second, MGNREGA wages fell below market wages, with the ratio dropping to around 60% for men and 75% for women by 2014. The real gap is larger because market wages are paid on time, while MGNREGA wages face long delays or sometimes go unpaid due to technical failures. This has created a “discouragement effect” with many rural workers losing interest.
Q3: How does the VB-G RAM G Act differ from MGNREGA on wage determination?
A: Under the VB-G RAM G Act, wage costs are shared 60:40 between Centre and States. Despite this change in funding pattern, the central government retained sole power to determine wage rates (under Section 10), dropping Section 6(2) (which guaranteed minimum wages) and keeping Section 6(1). This gives the Centre perpetual power to set wages even though States now contribute 40% of the cost. Unlike MGNREGA, the VB-G RAM G Act lacks a non-obstante clause overriding the Minimum Wages Act, potentially making it illegal to pay less than minimum wage.
Q4: Why is there a gap between official MGNREGA employment statistics and actual employment?
A: A recent analysis of Periodic Labour Force Survey data suggests that actual MGNREGA employment levels are much lower than official statistics indicate. The growing gap appears to reflect a major increase in leakages in the same period. The “discouragement effect” (workers losing interest due to low and delayed wages) and resurgence of corruption are related—when workers lose interest, there is no vigilance, and workers may be tempted to cooperate with corrupt elements instead of working by the rules.
Q5: What solution does the author propose, and what legal challenge may arise?
A: The author proposes that the central government notify wage rates equal to or higher than minimum wages in all States. This would put wage payments on a sound legal footing, increase real wages, and provide a simple rule for updating wages over time. However, the author fears the government will prolong the real-wage freeze to ensure employment generation declines. If so, the wage freeze should be challenged in court. With the non-obstante clause removed from the VB-G RAM G Act, paying anything less than minimum wages may be patently illegal, and the courts may need to intervene to correct this legislative failure.
