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Employment policy: the rural job guarantee, labour codes and schemes

Poverty and unemployment · Part 3 / 2 · Fact-checked on 25 October 2026 · how we check

Written with AI from the sources listed at the bottom of this page, then fact-checked by a separate AI.

MGNREGA (2005): the legal right to 100 days of work on demand, the 15-day rule and unemployment allowance, social audit and cost sharing; its replacement by the VB-G RAM G Act, 2025 (in force 1 July 2026) with 125 days, a seasonal pause, normative allocation and 60:40 sharing; the four labour codes in force from 21 November 2025; DAY-NRLM and self-help groups, PMEGP, PMKVY and the PM Viksit Bharat Rozgar Yojana.

Part 2 showed how India measures work and why unemployment takes many forms; this part looks at what the state does about it. The largest response has been a legal guarantee of rural wage work: the employment guarantee law of 2005, which for twenty years gave every rural household a right to work on demand, and the 2025 law that replaced it from July 2026. Alongside it sit the four labour codes, which rewrote the rules on wages, industrial relations, social security and workplace safety, and a set of schemes that promote self-employment, skills and formal hiring.

The National Rural Employment Guarantee Act, 2005 turned rural work from a scheme into a legal right. Earlier wage employment programmes offered work only as far as their funds allowed; the Act made the state answerable when work was not given. It came into force on 2 February 2006 in 200 districts, reached all rural districts in 2008 and was renamed the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) in 2009. Every rural household whose adult members volunteered for unskilled manual work was entitled to at least 100 days of wage employment in a financial year. The guarantee was meant to give a floor income in the lean season, slow distress migration to cities and create useful assets, such as ponds and roads, in the villages themselves.

The right was demand-driven. A household registered and received a job card; an adult who applied for work had to be given it within 15 days, failing which the state government paid an unemployment allowance of at least a quarter of the wage rate for the first 30 days and at least half for the rest of the year. Work was to be provided within 5 km of the worker's home, or else paid 10 per cent extra to cover travel. At least one-third of the beneficiaries were to be women. Wage rates were notified by the Centre, and wages were due weekly or within a fortnight. Works were chosen in the Gram Sabha, and at least half of them by cost were carried out by gram panchayats, with priority to water conservation, drought proofing, land development and rural roads.

Two further features made the Act distinctive. Section 17 required the Gram Sabha to conduct regular social audits of all works in the panchayat: villagers examine muster rolls, payments and the works themselves in an open meeting. And the Centre carried most of the cost: all of the unskilled wages and three-fourths of the material cost, including the wages of skilled and semi-skilled workers, while states paid the remaining quarter of the material cost and the unemployment allowance. At gram panchayat level, wages had to make up at least 60 per cent of the cost of works, which kept the programme labour-intensive rather than a construction scheme run with machines and contractors.

In practice the guarantee worked as a safety net. Demand for work rose in drought years, and it rose sharply in 2020-21, when migrant workers returned to their villages during the Covid-19 lockdown and the programme became a main source of income for many of them. Women came to account for more than half of the person-days of work generated in recent years. Its weak points were well known too: wages paid late, notified wage rates below the minimum wages of some states, assets of uneven quality, and funds that often ran short before the year ended, so that work was rationed despite the promise of employment on demand. These complaints, and the question of who should bear the cost, framed the debate over its replacement.

Parliament replaced the 2005 Act with the Viksit Bharat – Guarantee for Rozgar and Ajeevika Mission (Gramin) Act, 2025, known as VB-G RAM G. Both Houses passed the Bill on 18 December 2025 and the President gave assent on 21 December 2025. The Ministry of Rural Development then notified 1 July 2026 as the date on which the new Act came into force and MGNREGA, with the rules and schemes made under it, stood repealed. The guarantee rises from 100 to 125 days of wage work per rural household in a financial year, and wages are due weekly or within 15 days of the work. States notify a pause of up to 60 days a year in the peak sowing and harvesting seasons, when no work is taken up, so that farms do not lose labour when they need it most.

The funding model changes most. Under MGNREGA central funding followed demand: if more people sought work, the Centre had to find more money for wages. Under the new Act the Centre sets a normative allocation for each state in advance, and spending beyond it falls on the state. Costs are shared 60:40 between the Centre and the states, 90:10 for the north-eastern and Himalayan states, and borne fully by the Centre in Union Territories without a legislature, while the ceiling on administrative spending rises from 6 to 9 per cent. Works are grouped under four themes, water security, core rural infrastructure, livelihood infrastructure and works to cope with extreme weather, and come from gram panchayat plans approved by the Gram Sabha and linked to the PM Gati Shakti platform. Supporters point to more days and better planning; critics argue that a capped budget weakens the right to work on demand.

Labour is a Concurrent List subject, and over the decades the Centre had passed more than forty labour laws, many older than Independence, with overlapping definitions. Parliament merged 29 of them into four labour codes: the Code on Wages, 2019, the Industrial Relations Code, 2020, the Code on Social Security, 2020 and the Occupational Safety, Health and Working Conditions Code, 2020. Though passed in 2019 and 2020, the codes waited for rules from the Centre and the states, and all four came into force together on 21 November 2025. The aim was to make compliance simpler for employers while extending basic protections, such as minimum wages and social security, to many more workers.

Each code carries a few points worth knowing. The Code on Wages absorbed four laws, the Payment of Wages Act, 1936, the Minimum Wages Act, 1948, the Payment of Bonus Act, 1965 and the Equal Remuneration Act, 1976; it extends minimum wages to all employees and lets the Centre fix a floor wage below which no state minimum may fall. The Industrial Relations Code raises from 100 to 300 workers the size of establishment that needs government permission before lay-off, retrenchment or closure, and recognises fixed-term employment. The Code on Social Security defines gig and platform workers and lets governments frame schemes for them, funded partly by aggregators at 1 to 2 per cent of annual turnover, capped at 5 per cent of what they pay such workers; fixed-term employees qualify for gratuity after one year.

Besides wage work, the state promotes self-employment. The Deendayal Antyodaya Yojana–National Rural Livelihoods Mission (DAY-NRLM) of the Ministry of Rural Development began in June 2011 as Aajeevika, in place of the Swarnajayanti Gram Swarozgar Yojana. It organises poor rural women into self-help groups, usually of ten to twenty members, who save together and lend to one another; the groups are federated at village and cluster level and linked to bank credit, so that small loans can grow into livelihoods such as dairy, tailoring or a village shop. An urban mission on similar lines, DAY-NULM, was launched in 2013. The Prime Minister's Employment Generation Programme (PMEGP), formed in 2008 by merging two earlier schemes and run by the Ministry of MSME through the Khadi and Village Industries Commission, gives a subsidy of 15 to 35 per cent on bank loans for setting up new micro enterprises.

Skills and formal hiring are the other levers. The Pradhan Mantri Kaushal Vikas Yojana (PMKVY), started in 2015 under the Skill India Mission of the Ministry of Skill Development and Entrepreneurship, funds short-term training courses and the recognition of prior learning, which certifies skills people already have. The newest scheme targets formal jobs directly. The employment-linked incentive announced in the Union Budget 2024-25 was launched on 15 August 2025 as the Pradhan Mantri Viksit Bharat Rozgar Yojana, with an outlay of about Rs 99,446 crore and a target of about 3.5 crore jobs. For jobs created between 1 August 2025 and 31 July 2027, first-time employees registered with the Employees' Provident Fund Organisation receive one month's wage, up to Rs 15,000, in two instalments, and employers receive up to Rs 3,000 a month for each additional worker they keep on.

The policies in this part answer the problems set out in Part 2. A guarantee of manual work suits seasonal and disguised unemployment in villages, and the 2025 law keeps that guarantee while changing who pays and how far the Centre commits in advance. The labour codes try to bring the large unorganised workforce under common rules on wages and social security. Self-help groups and PMEGP turn underemployment into self-employment, PMKVY addresses the structural mismatch of skills, and hiring incentives push work into the formal sector. Read with Part 1, the chapter shows two sides of one problem: poverty lines and indices count those left behind, and labour statistics show whether work is reaching them. Poverty falls fastest where people find steady, productive work.

Exam traps

• MGNREGA guaranteed at least 100 days per rural household (not per person) per financial year; VB-G RAM G raises this to 125 days.
• Under MGNREGA work had to be given within 15 days of application; otherwise the state, not the Centre, paid the unemployment allowance (at least one-fourth of the wage for the first 30 days, at least half after that).
• MGNREGA: work within 5 km (else 10 per cent extra wages), at least one-third women beneficiaries, social audit by the Gram Sabha under Section 17, and a 60:40 wage-material ratio at gram panchayat level.
• Under MGNREGA the Centre paid all unskilled wages and 75 per cent of material cost; under VB-G RAM G the normal ratio is 60:40, with 90:10 for north-eastern and Himalayan states.
• VB-G RAM G: passed 18 December 2025, assent 21 December 2025, in force from 1 July 2026, when MGNREGA was repealed. Do not confuse the date of assent with the date of commencement.
• The four labour codes merged 29 central laws. The Code on Wages is of 2019; the other three are of 2020. All four came into force on 21 November 2025.
• Under the Industrial Relations Code, prior government permission for lay-off, retrenchment or closure is needed only in establishments with 300 or more workers (100 under the Industrial Disputes Act, 1947).
• PMEGP (2008) is run by the Ministry of MSME through KVIC; DAY-NRLM (2011) is under the Ministry of Rural Development; PMKVY (2015) is under the Ministry of Skill Development and Entrepreneurship.

Recap

• NREGA 2005: in force 2 February 2006 in 200 districts, all rural districts by 2008, renamed MGNREGA in 2009; at least 100 days of unskilled wage work per rural household a year on demand.
• MGNREGA rules: work within 15 days or a state-paid unemployment allowance; within 5 km; at least one-third women; wages weekly or within a fortnight; works chosen in the Gram Sabha.
• Social audit by the Gram Sabha (Section 17); Centre paid all unskilled wages and 75 per cent of material cost; wages at least 60 per cent of works cost.
• VB-G RAM G Act, 2025: passed 18 December 2025, assent 21 December 2025, in force and MGNREGA repealed from 1 July 2026.
• VB-G RAM G: 125 days; wages weekly or within 15 days; up to 60 days' pause in peak farm seasons; normative allocation; 60:40 (90:10 north-eastern and Himalayan states; full central funding in UTs without legislature).
• Four labour codes (Wages 2019; Industrial Relations, Social Security and OSH 2020) merged 29 laws and came into force on 21 November 2025.
• Key code points: central floor wage; 300-worker threshold for lay-off permission; gig and platform workers with aggregator contributions; gratuity after one year for fixed-term employees.
• Schemes: DAY-NRLM (2011, self-help groups), PMEGP (2008, 15–35 per cent subsidy via KVIC), PMKVY (2015, Skill India), PM Viksit Bharat Rozgar Yojana (15 August 2025, about Rs 99,446 crore).

Practice questions

Sources

• The Mahatma Gandhi National Rural Employment Guarantee Act, 2005 (Sections 3, 7, 16 and 17; Schedules I and II); the Viksit Bharat – Guarantee for Rozgar and Ajeevika Mission (Gramin) Act, 2025 — https://www.indiacode.nic.in
• Press Information Bureau: releases on the VB-G RAM G Bill and Act (December 2025) and its commencement (May 2026); the labour codes coming into force (November 2025); the Pradhan Mantri Viksit Bharat Rozgar Yojana (2025); DAY-NRLM, PMEGP and PMKVY — https://pib.gov.in
• The Code on Wages, 2019; the Industrial Relations Code, 2020; the Code on Social Security, 2020; the Occupational Safety, Health and Working Conditions Code, 2020 — https://www.indiacode.nic.in
• Economic Survey, chapters on employment, rural development and skilling (recent editions) — https://www.indiabudget.gov.in/economicsurvey/