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A Missed Opportunity to Secure Minimum Wages for Workers

The VB-G RAM G Act overlooks crucial wage anomalies in MGNREGA, affecting worker benefits and program sustainability.
G
Gopi
••6 mins read
Wage suppression undermines rural employment guarantees

Introduction

Employment guarantee schemes are among the most powerful tools a welfare state possesses to protect rural livelihoods and sustain minimum wages. India's MGNREGA — the world's largest public works programme — has provided a crucial income floor for rural households since 2006. Yet a systematic real-wage freeze since 2009 has progressively eroded its effectiveness, with MGNREGA wages now falling below minimum wages in most states — raising both legal and constitutional questions. The proposed VB-G RAM G Act, rather than correcting this structural failure, risks perpetuating it.

Key Data PointDetail
MGNREGA launchFebruary 2, 2006
Year central government notified wage rates2009 (under Section 6(1))
Initial central notification₹100/day in most states
UP minimum wage increase (2007–08)₹58 → ₹100/day
MGNREGA wage vs agricultural wage (2014)~60% for men, ~75% for women
Current statusMGNREGA wages below minimum wages in most states (2025–26)
Wage revision mechanismAnnual CPI-AL linked — no real-term increase
VB-G RAM G wage cost sharing60% Centre : 40% States

"A way forward would be for the central government to notify wage rates equal to or higher than minimum wages in all States — this would put wage payments on a sound legal footing and lead to a much-needed increase in real wages."

Background and Context

MGNREGA guarantees 100 days of unskilled manual work per rural household per year. Its wage determination framework has two provisions under Section 6 of the Act:

  • Section 6(1): Empowers the central government to notify state-specific MGNREGA wage rates.
  • Section 6(2): Until central notification, state minimum wages for agricultural labourers apply.

From 2006 to 2009, Section 6(2) operated — meaning agricultural minimum wages determined MGNREGA wages. In many states, these minimum wages exceeded market wages, making MGNREGA highly attractive to rural workers and a genuine labour market intervention.

In 2009, the central government invoked Section 6(1) — ostensibly as a pro-worker measure, notifying ₹100/day nationally. In practice, this gave the Centre perpetual control over MGNREGA wages and enabled a systematic real-wage freeze thereafter.

The Real-Wage Freeze — Mechanism and Consequences

Since 2009, MGNREGA wages have been revised annually only to the extent of inflation (Consumer Price Index for Agricultural Labourers — CPI-AL) — with no real-term increase whatsoever.

Consequence 1 — Wages falling below minimum wages: State minimum wages for agricultural labourers have risen in real terms over the years. MGNREGA wages have not. By 2025–26, MGNREGA wages are lower — often significantly lower — than agricultural minimum wages in most states. This directly contradicts MGNREGA's foundational purpose of sustaining minimum wages.

Consequence 2 — Wages falling below market wages: Between 2009 and 2014, rural real wages rose rapidly — partly because MGNREGA itself tightened rural labour markets. By 2014, MGNREGA wages were only 60% of agricultural market wages for men. This gap has persisted, making MGNREGA increasingly unattractive relative to private employment.

Consequence 3 — Payment delays compounding the problem: Market wages are typically paid on the same day. MGNREGA wages are paid after long, uncertain delays — sometimes not at all, due to technical failures of the Aadhaar-based Payment System (ABPS) or the National Mobile Monitoring System (NMMS). Studies by the LibTech group have documented this extensively.

Legal AspectDetail
Section 6(1) of MGNREGANon-obstante clause — "Notwithstanding anything contained in the Minimum Wages Act, 1948" — provided legal cover for paying below minimum wages
VB-G RAM G Act — Section 10Retains central government's power to set wages but drops the non-obstante clause
ImplicationWithout the non-obstante clause, paying below minimum wages under VB-G RAM G is patently illegal
Supreme CourtMatter taken up but not clearly settled

The removal of the non-obstante clause in the VB-G RAM G Act creates a significant legal vulnerability — if the Centre continues the real-wage freeze, it is exposed to judicial challenge on the grounds of violating the Minimum Wages Act, 1948.

MGNREGA vs VB-G RAM G Act — Wage Framework Comparison

ParameterMGNREGAVB-G RAM G Act
Wage determinationSection 6(1) — Centre notifies; Section 6(2) — State minimum wages (fallback)Section 10 — Centre notifies; Section 6(2) equivalent dropped
Non-obstante clausePresent — legal cover for sub-minimum wagesAbsent — no legal cover for sub-minimum wages
Wage cost sharing100% Centre60% Centre : 40% States
Rationale for central controlWages fully centrally fundedWeakened — States now co-fund wages

The VB-G RAM G Act's wage architecture is internally contradictory — it drops the legal protection for below-minimum wages (non-obstante clause) while retaining central control over wages, even as states now contribute 40% of wage costs.

Discouragement Effect and Governance Failure

The combined impact of low wages and delayed payments has produced a severe discouragement effect among rural workers. Many have lost interest in MGNREGA — reducing both participation and vigilance against corruption.

This has created a vicious cycle:

  • Low wages → worker disengagement → reduced oversight
  • Reduced oversight → increased leakages and corruption
  • Corruption → inflated official statistics masking actual employment decline
  • Recent analysis of Periodic Labour Force Survey (PLFS) data suggests actual MGNREGA employment is significantly lower than official figures — the gap explained by growing leakages.

Way Forward

  • Align wages with minimum wages: The central government must notify MGNREGA and VB-G RAM G wages at or above state minimum wages for agricultural labourers — fulfilling both legal obligations and the programme's foundational purpose.
  • Real-time wage payment: Strengthen payment infrastructure to eliminate delays — shift from ABPS-dependent systems to more robust, worker-friendly alternatives for remote and digitally excluded populations.
  • Wage update formula: Adopt a transparent, automatic formula linking wages to both inflation and real wage trends — removing political discretion from wage revision.
  • Legal challenge: With the non-obstante clause absent from the VB-G RAM G Act, any sub-minimum wage notification should be challenged in court.
  • Anti-corruption architecture: Restore worker vigilance through social audits, grievance redressal, and community monitoring — currently weakened by the discouragement effect.

Conclusion

The MGNREGA wage crisis is not an accident — it is the product of a deliberate policy choice to freeze real wages, made in 2009 and sustained for over fifteen years. This choice has progressively hollowed out the world's most ambitious rural employment guarantee, turning it from a genuine labour market intervention into an increasingly marginal and unattractive programme. The VB-G RAM G Act, by dropping the minimum wage fallback and the non-obstante clause while retaining central wage control, compounds this failure rather than correcting it. A welfare programme's legitimacy ultimately rests on its wage — a wage below what the market or the law mandates signals not protection, but exploitation. Restoring wage integrity is not merely a policy correction; it is a constitutional obligation under the right to life and livelihood.

Quick Q&A

Everything you need to know

Wage rates are a central pillar of any employment guarantee programme, as they directly determine worker participation, programme effectiveness, and fiscal sustainability. A relatively higher wage rate generates enthusiasm among rural workers, ensuring active participation and strengthening the programme’s role as a social safety net. For instance, in the early years of MGNREGA (2006–2009), wages aligned with or exceeded State minimum wages in many regions, making the scheme highly attractive and effective in boosting rural incomes.

Economic and social implications:

  • Labour market impact: Higher wages can tighten rural labour markets, pushing up private sector wages as well.
  • Poverty alleviation: Adequate wages ensure meaningful income support, especially during agrarian distress.
  • Programme credibility: Fair wages enhance trust and participation among beneficiaries.

Conversely, wage suppression acts as a policy lever to indirectly limit programme expansion. When wages are kept low or stagnant in real terms, worker interest declines, reducing demand for work. This has been observed in recent years where MGNREGA wages lag behind both minimum and market wages, leading to a “discouragement effect.” Thus, wage rates are not just a technical parameter but a strategic policy tool shaping the success or decline of employment schemes.

The shift from State-specific minimum wages (Section 6(2)) to centrally notified wages (Section 6(1)) under MGNREGA in 2009 was initially justified on administrative and fiscal grounds, but it created structural distortions over time. Initially, central notification led to a uniform increase (₹100/day), which appeared pro-worker. However, this move enabled the Centre to control and moderate wage growth in the long run.

Key challenges arising from this shift:

  • Real wage stagnation: Wages were indexed only to inflation (CPI-AL), not to productivity or rising living standards.
  • Divergence from minimum wages: Many States increased their minimum wages faster, creating a gap where MGNREGA wages became lower than statutory minimum wages.
  • Legal ambiguity: Paying below minimum wages raises questions about compliance with labour laws, leading to litigation (e.g., Supreme Court cases).

This shift also weakened the federal balance, as States lost autonomy in wage determination despite differing socio-economic conditions. Over time, it undermined one of MGNREGA’s original objectives—acting as a floor for rural wages. Thus, what began as a short-term administrative reform turned into a long-term policy constraint affecting both equity and effectiveness.

The real-wage freeze under MGNREGA, where wages are adjusted only for inflation and not increased in real terms, has had significant consequences for both rural labour markets and programme outcomes. Over time, MGNREGA wages have fallen behind both minimum wages and market wages, reducing the scheme’s attractiveness.

Impact on rural labour markets:

  • Declining participation: Workers prefer higher-paying private employment, especially when MGNREGA wages are 60–75% of market wages.
  • Weakening bargaining power: Earlier, MGNREGA helped raise rural wages by tightening labour supply; this effect has diminished.
  • Gender implications: Women, who benefited relatively more earlier, now face reduced incentives to participate.

Programme-level consequences:
  • Discouragement effect: Low wages combined with delayed payments reduce demand for work.
  • Corruption and leakages: Reduced worker vigilance allows manipulation of records and ghost beneficiaries.
  • Mismatch with official data: Surveys like PLFS suggest lower actual employment than reported figures.

For example, delays due to Aadhaar-based Payment System (ABPS) failures have compounded the issue. Thus, the wage freeze has transformed MGNREGA from a demand-driven rights-based programme into a less effective and sometimes supply-constrained scheme.

The VB-G RAM G Act largely replicates the wage determination framework of MGNREGA, but without addressing its key shortcomings, thereby raising concerns about policy continuity without reform. While MGNREGA allowed both State-based minimum wages (Section 6(2)) and central notification (Section 6(1)), the new Act retains central control while discarding the minimum wage safeguard.

Key issues in VB-G RAM G Act:

  • Centralised wage determination: Despite a 60:40 cost-sharing model, the Centre retains authority to fix wages, undermining federal principles.
  • Absence of minimum wage guarantee: Unlike MGNREGA’s earlier provision, there is no fallback ensuring wages align with State minimum wages.
  • Lack of reforms: No new mechanisms to address delayed payments, corruption, or technological failures.

Comparative concerns:
  • Legal vulnerability: Without a non-obstante clause, paying below minimum wages may be legally indefensible.
  • Policy inconsistency: Retaining central control despite shared funding lacks economic justification.

In effect, the VB-G RAM G Act risks institutionalising the real-wage stagnation and inefficiencies seen in MGNREGA. Instead of correcting past flaws, it may deepen them, making it a case of missed policy opportunity.

The trajectory of MGNREGA provides clear empirical evidence of how wage policies shape programme outcomes. In its early phase (2006–2009), wages were aligned with State minimum wages, which in several cases exceeded market wages. For instance, in Uttar Pradesh (2007–08), minimum wages rose sharply from ₹58 to ₹100 per day, making MGNREGA highly attractive and boosting participation.

Positive phase (early years):

  • High demand for work: Workers actively sought employment under the scheme.
  • Rural wage growth: Private sector wages increased due to labour shortages.
  • Poverty reduction: Increased incomes supported consumption and resilience.

Post-2009 phase (central wage control):
  • Relative wage decline: MGNREGA wages lagged behind minimum and market wages.
  • Payment delays: Studies by LibTech show frequent delays and even non-payment.
  • Declining interest: Workers shifted to more reliable and better-paying opportunities.

For example, even if MGNREGA offers ₹220/day, a worker may prefer ₹300/day in private work with immediate payment. This highlights that timeliness and adequacy of wages are as important as statutory guarantees. Thus, wage policy has been a निर्णायक factor in both the initial success and subsequent decline of the scheme.

As a district administrator, low MGNREGA participation despite high distress signals structural and administrative bottlenecks, particularly related to wages and implementation. The first step would be a diagnostic assessment focusing on wage competitiveness, payment delays, and worker awareness.

Diagnosis:

  • Wage gap analysis: Compare MGNREGA wages with local market and minimum wages.
  • Payment timelines: Audit delays in wage disbursement, especially under ABPS.
  • Field verification: Interact with workers to identify discouragement factors.
  • Leakage detection: Check for ghost beneficiaries and inflated muster rolls.

Corrective measures:
  • Ensure timely payments: Streamline fund flow and address technical glitches.
  • Transparency measures: Strengthen social audits and community monitoring.
  • Worksite improvements: Provide basic facilities to enhance worker experience.
  • Advocacy: Recommend higher wage rates to State and Centre based on evidence.

For instance, districts that improved payment timeliness and grievance redressal have seen higher participation even without wage increases. Ultimately, addressing both economic incentives and governance deficits is essential to restore confidence in the programme and ensure it fulfills its role as a safety net.

Attribution

Original content sources and authors

JD
Jean Dreze
TH
The Hindu
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