Declining dependence: Declining MGNREGA demand is a positive sign

This improvement is attributed to multiple factors, including stronger real wages in both agricultural and non-agricultural work, increased tractor and fertiliser sales, healthy growth in farm credit

Demand for work under the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) has shown a sharp and sustained drop, indicating improving economic conditions in rural India. According to the official data, the number of households seeking work under the law fell 35.3 per cent in October, compared to the same month last year. Moreover, this is one of the steepest mid-year declines in recent years. Over the longer term, too, the number of rural workers relying on the scheme dropped from the pandemic peak of 111.9 million in 2020-21 to around 78.8 million in 2024-25 (returning to pre-Covid levels of 2019-20).

 

There could be several proximate reasons for this decline. The government had imposed a 60 per cent cap on MGNREGA labour-budget spending in the first half of the financial year, which likely constrained work generation. Also, rain in October reportedly made many work sites inaccessible, disrupting field work and discouraging participation. However, these short-term factors don’t fully explain the broader downward trend, which seems to be taking hold in many states. Indeed, the recent drop, which is beyond the usual seasonal pattern, suggests a structural shift in rural employment. This hypothesis finds support in the latest labour-market data. The most recent monthly bulletin of the National Statistics Office (NSO), under the Periodic Labour Force Survey (PLFS), shows the jobless rate in rural areas declined to 4.4 per cent in October from 4.9 per cent in June. This suggests many rural households may be now accessing non-farm or other non-MGNREGA work. Further, Motilal Oswal Financial Services, in a recent research note “Rural Rules, Urban Follows”, reported that rural consumption expanded 7.7 per cent in the second quarter of 2025-26, the fastest pace in 17 quarters.

 

This improvement is attributed to a combination of factors, including stronger real wages in both agricultural and non-agricultural work, increased tractor and fertiliser sales, healthy growth in farm credit, and better rainfall distribution. At the same time, labour markets in urban areas have shown some signs of stress. The urban unemployment rate touched a three-month high of 7 per cent in October, compared to 6.8 per cent in September. This divergence between rural and urban labour trends may reflect a gradual movement of workers from villages to cities as rural opportunities stabilise or as households seek better earnings in urban centres. This again can be interpreted as a positive sign and would bring labour to more productive non-farm work in urban areas.

 

Given these developments, the policy focus should now be on sustaining the positive momentum in rural labour markets. Continued improvement in rural roads, connectivity, and irrigation, along with targeted skilling programmes, can help deepen non-farm employment. Expanding credit access and market linkages for micro and small enterprises would further support the diversification of rural livelihoods. Meanwhile, the MGNREGA should be used more thoughtfully during lean seasons, making it a crucial safety net without creating dependency. The broader policy objective, of course, should be to create non-farm jobs and pull out people dependent on agriculture. The notification of the four labour Codes should help in this regard over the medium term.