Reasons for Revising NREGA Wage Rates: Lets learn more about it!

The Parliamentary Standing Committee on Rural Development and Panchayati Raj presented its report on the Mahatma Gandhi National Rural Employment Guarantee Act (NREGA) on April 3.

The report highlighted several issues, including the inability of NREGA wages to keep pace with inflation, resulting in wages that remain below subsistence levels. This situation, according to the Committee, has hindered the scheme's goal of providing economic security to the most vulnerable segments of the rural population.

With more than 250 million registered workers, NREGA stands as the largest employment guarantee program globally, offering up to 100 days of work per year to rural households.

In the last week of March, the Ministry of Rural Development (MoRD), which oversees the implementation of NREGA, announced the daily wage rates for each state for the Financial Year (FY) 25-26. These rates range from Rs 241 in Nagaland to Rs 400 in Haryana, with the national average wage set at Rs 294, reflecting a modest increase of 5% from FY 24-25.

The issue of NREGA wage rates has been contentious for many years, with the Parliamentary Committee, labor unions, and civil society groups advocating for higher wages for over a decade. Key concerns include the widening gap between NREGA wages and the officially notified minimum wage, inconsistencies in state-specific wages, and inadequate adjustments for inflation.

Determining NREGA wage rates

Section 6 of the Act outlines two methods for establishing NREGA wage rates.

According to Section 6(1), the Centre has the authority to set the wage rate, overriding the Minimum Wages Act, 1948 (MWA), although the notified wage must not fall below Rs 60. Section 6(2) stipulates that in the absence of a notified wage rate from the Centre, the state's minimum agricultural wage will serve as the NREGA wage rate.

Between 2005 and 2009, the wages under the National Rural Employment Guarantee Act (NREGA) were aligned with the minimum agricultural wage rates established by each state. However, as states began to increase their minimum wages, the financial burden on the central government, which is responsible for covering the entire NREGA wage expenses, grew significantly. Consequently, in 2009, the central government imposed a cap on the NREGA wage rate at Rs 100. This decision resulted in some workers in certain states receiving less than the legally mandated minimum wage, thereby violating the Minimum Wages Act (MWA). Additionally, the wage cap meant that, in real terms, wages would effectively decrease over time.

The Rs 100 wage cap was later contested in court. In 2011, the Karnataka High Court affirmed the authority of the MWA and instructed the central government to ensure that wages were no less than the prevailing minimum wage in each state. This ruling was upheld by the Supreme Court in 2012.

In 2010, the Central Employment Guarantee Council, which serves as a statutory advisory body for MGNREGA, established a Working Group on Wages led by the distinguished economist Jean Dreze. The Dreze Committee advocated for a return to the provisions of Section 6 (2) for determining NREGA wages. As a temporary measure, it also recommended linking the wage rate to the Consumer Price Index for Agricultural Workers (CPI-AL) to ensure that the "frozen" Rs 100 wage would be adjusted for inflation.

The National Advisory Council, chaired by Sonia Gandhi, also supported the idea of paying the minimum wage.

Despite these recommendations, in December 2010, the central government opted to separate the NREGA wage rate from the minimum wage. However, it did begin to index the wage rate to the CPI-AL starting from the fiscal year 2011-12. This method of calculating NREGA wage rates remains in effect today, with the Ministry of Rural Development announcing annual rates for each state based on the CPI-AL, using 2009 as the base year.

As a result, NREGA wage rates are now lower than the minimum agricultural wage rates in nearly all states, with some states experiencing a disparity exceeding Rs 200.

Committees Established, Recommendations Overlooked

Over the years, the Centre has formed several committees to assess the NREGA wage rate, as well as wage rates in general. However, their recommendations have largely been disregarded.

Critical Issues with NREGA Wage Rates

The most urgent concern regarding the NREGA wage is its growing disparity from the minimum wages set in each state. In the fiscal year 2025-26, the gap between the MGNREGA wage and the state minimum agricultural wage reaches as much as Rs 241 in Sikkim. The largest discrepancy recorded in FY 2020-21 was Rs 119 in Kerala.

The Parliamentary Standing Committee has consistently criticized the Ministry of Rural Development (MoRD) for this situation, emphasizing the rising cost of living and pointing out that the "abysmally low" wages contribute significantly to the dropout rates among workers from NREGA.

Another significant issue is the inconsistency in NREGA wages across different states, which the Standing Committee has deemed "beyond comprehension" and a breach of Article 39 of the Constitution, which mandates equal pay. In FY 2025-26, the wage difference between Haryana and Nagaland is as much as Rs 159.

In response to these issues, the MoRD has maintained that NREGA serves as a secondary employment option and that each state has the authority to raise wages beyond the central government's offerings, funding the difference from their own budgets. So far, only Himachal Pradesh, Jharkhand, and Odisha have taken advantage of this option.

Furthermore, there is the matter of indexation. The Consumer Price Index for Rural Laborers (CPI-R), which encompasses households of all rural laborers, is regarded as a more comprehensive and representative index compared to the Consumer Price Index for Agricultural Laborers (CPI-AL), which focuses solely on agricultural households.

Moreover, the MoRD continues to utilize 2009 as the base year for indexation, a time when NREGA wages were limited to Rs 100. Although the MoRD has acknowledged that the wage rate is "not commensurate with market rates," it has made a "conscious decision" to refrain from making adjustments thus far.

An Ambitious Vision Yet to be Realized

NREGA was introduced during a period when the daily earnings of casual rural and agricultural laborers were exceedingly low, leaving them with minimal negotiating power. Its goal was to guarantee livelihood security through the provision of dignified employment opportunities.

Numerous studies have indicated that rural wages have risen as a result of NREGA's implementation. Over the years, this program has consistently acted as a crucial support system for the rural impoverished, a fact that became particularly evident during the Covid-19 pandemic.

In the case of Sanjit Roy vs State of Rajasthan (1983), the Supreme Court determined that paying less than the minimum wage constitutes “forced labour,” which is punishable under Article 23 of the Constitution. The Standing Committee has reiterated this viewpoint, suggesting that “a minimum of Rs 400 per day should be established, as the existing wage rates fail to cover even basic daily necessities.”

Until workers are compensated fairly, NREGA’s aspiration for a right to dignified work will remain unachieved.