The Evolution of Rural Employment Laws and Higher Education

Economic Survey 2025-26 highlights changes in rural employment legislation and impacts on education and employment in rural India.

Gopi

•January 30, 2026•5 mins read

Survey Notes Strong Rural Growth, Lower Unemployment

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1. Context: Policy Shift from MGNREGS to the Viksit Bharat Guarantee for Rozgar and Ajeevika Mission (Gramin) Act, 2025

The Economic Survey 2025-26 situates the scrapping of MGNREGS within a changing rural labour landscape. It argues that rural India has undergone structural improvements in income, consumption, and credit access, thereby necessitating a reconsideration of older employment-guarantee models. The government positions the new Viksit Bharat Act, 2025 as a comprehensive legislative reset aimed at modernising rural employment interventions.

The Survey acknowledges that although MGNREGS stabilised rural incomes since 2005, several implementation-linked distortions accumulated over time. These include mismatches between expenditure and actual physical work, the rise of machine use in labour-intensive tasks, and non-compliance with digital attendance systems. These shortcomings, it maintains, limit the scheme’s suitability in a transforming rural economy.

The discussion gains significance for governance because employment-guarantee schemes constitute a critical counter-cyclical safety net. A redesign affects millions of rural households, fiscal commitments, and the nature of state-led livelihood support. If the transition is poorly planned, gaps may emerge in local employment generation, affecting vulnerable groups.

In governance terms, the shift represents an attempt to align welfare schemes with new rural realities; however, without safeguarding inclusion, such transitions risk weakening last-mile support systems.

Key data:

Person-days fell from 389.09 crore (FY21) to 183.77 crore (FY26) — 53% decline.
Rural unemployment dropped from 3.3% (2020-21) to 2.5% (2023-24).
Women’s participation rose from 48% (FY14) to 58.1% (FY25).

"The nature of rural employment requirements has transformed." — Economic Survey 2025-26

2. Decline in MGNREGS Demand and Changing Rural Fundamentals

The Survey cites NABARD’s Rural Economic Conditions and Sentiments Survey (RECSS), November 2025, which points to broad-based rural economic strengthening. Indicators suggest rising income growth, robust consumption, better access to formal credit, improved loan repayment capacity, and high satisfaction with rural infrastructure. Together, these signify the emergence of more resilient livelihood pathways outside the MGNREGS ecosystem.

Rural consumption is reported at a 17-quarter high, supported by growth in both agricultural and non-agricultural real wages. The Survey interprets this as evidence that rural households are increasingly accessing non-farm opportunities, which reduces dependence on wage-guarantee programmes. The government views these trends as a justification for redesigning rural employment guarantees to match evolving economic realities.

However, workers’ unions and activists argue that the decline in demand is not entirely organic. They highlight under-funding, delayed payments, and technological barriers—particularly mandatory digital attendance—as factors that “artificially suppressed” demand. Such constraints disproportionately affect vulnerable groups with limited digital access.

The logic here suggests that interpreting reduced utilisation solely as reduced need may misguide policy; failure to address access barriers can erode the protective intent of social-security schemes.

Causes of declining demand (as per Survey):

Expansion of non-farm employment
Rising rural wages
Stronger credit access
Reduced unemployment rate

Challenges flagged by workers’ groups:

Low budget allocations
High digital compliance burden
Technological exclusion
Administrative delays

"Development is freedom." — Amartya Sen (relevant to capability-based access to welfare)

3. Structural Issues Identified in MGNREGS

The Survey reiterates that long-standing structural constraints limit the effectiveness of MGNREGS despite its past contributions. It argues that the architecture has reached its limits due to inefficiencies that impede accountability and measurable productivity. Key concerns include misappropriation of funds, labour-machine substitution, incomplete projects, and inflated reporting.

The mismatch between fiscal expenditure and physical progress is highlighted as a persistent risk to transparency. The Survey also notes that only a small proportion of households complete 100 days of work after the pandemic. This reflects saturation in the scheme’s capacity to provide stable, year-round employment in the present economic context.

Machine use in tasks meant for manual labour is cited as a deviation from core design principles, reducing intended employment generation. Moreover, concerns regarding the bypassing of digital attendance lead to inconsistencies between recorded and actual work done. These issues cumulatively weaken confidence in the scheme’s governance framework.

From a governance perspective, unresolved structural weaknesses can convert social-protection schemes into fiscal liabilities rather than productive safety nets; ignoring these distortions risks persistent inefficiency and leakage.

Structural issues (as per Survey):

Expenditure-physical progress mismatch
Use of machines in labour-intensive tasks
Misappropriation over time
Digital attendance bypassing
Low completion of 100 days of work

"The scheme’s architecture has reached its limits." — Economic Survey 2025-26

4. Rationale Behind the Viksit Bharat Guarantee for Rozgar and Ajeevika Mission (Gramin) Act, 2025

The new legislation is positioned as a “comprehensive legislative reset” aimed at aligning employment guarantees with modern rural development priorities. The government frames it as an evolution rather than a withdrawal, seeking to incorporate design improvements that respond to improved rural fundamentals.

The Survey emphasises that strengthened rural consumption, improved infrastructure, and increased credit penetration create conditions where employment-guarantee programmes must shift from distress-driven support to capability-enhancing interventions. The new Act is expected to integrate livelihood diversification, productivity gains, and skilling into rural public works.

However, replacing a well-known legal entitlement requires balancing efficiency with equity. Without clear safeguards, the transition may create uncertainty for households that relied on MGNREGS as an immediate fallback option during employment shocks. Ensuring continuity and accessibility will be critical for vulnerable communities.

The logic underscores that policy resets must enhance resilience without weakening the legal guarantee of work; failing to ensure this continuity could widen vulnerability gaps.

Expected focus areas of the new Act (as implied):

Modernisation of rural public works
Stronger accountability architecture
Reduced misuse of funds
Integration of livelihood and skill development

"A comprehensive legislative reset is necessary to address the shortcomings of employment-guarantee programmes." — Economic Survey 2025-26

Conclusion

The Economic Survey’s justification for scrapping MGNREGS is rooted in claims of improved rural fundamentals and accumulated structural inefficiencies within the scheme. While the new Viksit Bharat Act seeks to modernise employment guarantees, the success of this transition will depend on safeguarding inclusion, ensuring accountability, and preventing gaps in last-mile support. A balanced, evidence-based approach will be critical to sustaining rural resilience and strengthening India’s social-protection architecture.

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Everything you need to know

The Economic Survey 2025-26 justified the scrapping of MGNREGS based on structural inefficiencies and changing rural realities. While MGNREGS helped stabilise rural incomes since 2005, the survey highlighted persistent issues, such as:

Mismatch between expenditure and physical progress of projects
Use of machines in labour-intensive work, reducing employment opportunities
Frequent bypassing of digital attendance systems
Low completion rates for the promised 100 days of work, particularly post-pandemic
Accumulated misappropriation and leakage of funds

Furthermore, declining demand for MGNREGS, falling person-days from 389.09 crore in FY21 to 183.77 crore in FY26, and reduced rural unemployment suggest that households increasingly access non-farm or other forms of employment. The Survey argued that the programme’s architecture had reached its limits and required a comprehensive redesign to remain relevant.

The Survey frames the Viksit Bharat Guarantee for Rozgar and Ajeevika Mission (Gramin) Act, 2025 as a legislative reset to address deep-seated shortcomings of MGNREGS. The new Act aims to align employment guarantee programmes with the current rural economic context. Key reasons include:

Improved rural economic fundamentals, including rising incomes, formal credit access, and robust consumption patterns
Declining dependence on MGNREGS for household incomes due to higher availability of non-farm employment
Need for more targeted, efficient, and accountable mechanisms that reduce leakages and ensure timely execution of work

By redefining objectives and incorporating lessons from decades of implementation, the new Act seeks to provide employment support while promoting skill development, entrepreneurship, and sustainable rural livelihoods, making interventions more responsive to contemporary rural needs.

The Survey relies on NABARD’s RECSS and other studies to illustrate significant improvements in rural economic conditions. Highlights include:

Robust growth in both agricultural and non-agricultural real wages
Increased consumption, with rural spending at a 17-quarter high
Enhanced access to formal credit and improved loan repayment capacity
High satisfaction with rural infrastructure and declining inflation perceptions

These positive trends imply that rural households are increasingly able to secure livelihoods outside employment guarantee schemes. As a result, the demand for MGNREGS has been steadily declining, reflecting a reduced necessity for unconditional work provision. Consequently, employment programmes must evolve to complement a growing rural economy rather than substitute for market-based employment, emphasising skill development, entrepreneurship, and targeted support.

MGNREGS faced structural and operational limitations that constrained its effectiveness over time. Key issues include:

Mismatch between financial allocation and physical project progress, leading to underutilised budgets
High reliance on machinery in labour-intensive work, reducing employment generation
Administrative challenges such as mandatory digital attendance, creating barriers for workers
Persistent leakages and misappropriation of funds, eroding programme integrity
Insufficient provision for 100 days of work per household, especially post-pandemic

These structural flaws contributed to declining demand and raised concerns over the programme’s long-term sustainability. While MGNREGS provided crucial income support in periods of distress, these limitations necessitated a redesign to ensure efficient, accountable, and inclusive rural employment delivery.

Example 1: Decline in person-days generated – The Survey notes that person-days under MGNREGS fell from 389.09 crore in FY21 to 183.77 crore in FY26 (up to December 2025), a drop of over 53%. This decline coincides with rural unemployment falling from 3.3% to 2.5% over the same period, indicating households increasingly find work outside the scheme.

Example 2: Women’s workforce participation – While participation rose from 48% in FY14 to 58.1% in FY25, the Survey notes that structural issues and declining programme demand mean women are now more engaged in non-MGNREGS work. This highlights how economic improvements enable households, including women, to diversify income sources and reduce dependence on employment guarantees.

These examples illustrate that employment guarantee schemes must evolve to match changing rural realities, focusing on efficiency, targeted support, and complementing broader economic opportunities.

Pros:

Addresses structural inefficiencies of MGNREGS, including leakages and administrative bottlenecks
Aligns employment guarantee programmes with current rural economic conditions and rising non-farm employment
Emphasises skill development, entrepreneurship, and sustainable livelihoods, creating more durable employment opportunities

Cons:

Potential transitional challenges as workers adapt to new schemes
Risk of exclusion if targeting mechanisms are not inclusive or robust
Initial implementation complexity due to legislative and administrative changes

In conclusion, while MGNREGS played a transformative role historically, replacing it with a modernised framework is a logical step to ensure that rural employment policies remain effective, equitable, and aligned with the evolving economic landscape. Successful implementation will depend on careful programme design, monitoring, and stakeholder engagement.

The Survey emphasises that employment guarantee schemes must evolve in response to improved rural economic conditions. Key recommendations include:

Targeting support where it is most needed, rather than blanket provision
Incorporating skill development, training, and entrepreneurship to facilitate sustainable livelihoods
Ensuring transparency and accountability to prevent leakage and improve delivery efficiency
Complementing rather than substituting for market-based employment opportunities

Case study: The decline in MGNREGS person-days from 389.09 crore in FY21 to 183.77 crore in FY26 demonstrates reduced dependence on wage guarantee work. By designing the Viksit Bharat Guarantee for Rozgar and Ajeevika Mission (Gramin) Act, 2025 to incorporate skills, micro-enterprise support, and targeted wage provision, policymakers can ensure that rural employment programmes remain relevant, inclusive, and efficient in a more prosperous rural economy.