Study on Effectiveness of New MGNREGS Wage Payment System

January 25, 2025

The Aadhaar-Based Payment System (ABPS) has been a focal point of discussion in India since its mandatory implementation for wage payments under the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) from January 1, 2024. This system aims to enhance efficiency and transparency in wage disbursement. However, recent studies have raised concerns about its effectiveness compared to traditional bank account methods.

Overview of Aadhaar-Based Payment System

ABPS allows wage payments to be directly linked to workers’ Aadhaar numbers.
This requires linking the Aadhaar number with job cards and bank accounts.
The government introduced ABPS in 2016 as an optional system.
The move to make it mandatory was aimed at streamlining payments and reducing delays.

Study Findings on Payment Efficiency

A study published in the Indian Journal of Labour Economics analysed over 3 crore MGNREGA transactions. It found no difference in timely wage payments between ABPS and traditional bank methods. About 39% of ABPS payments were processed within seven days, compared to 36% for bank accounts. Payment rejection rates were also similar, with 2.1% for ABPS and 2.85% for traditional accounts.

Challenges Faced by Workers

Workers have reported issues with wage misdirection and deletion from the payment system due to mismatches between job card details and Aadhaar. The centralised nature of ABPS complicates the resolution of these issues. Localised problems with traditional bank payments can be addressed more swiftly.

Complexity of the Payment Process

To utilise ABPS, workers must complete several steps. These include linking their Aadhaar number to their job card and bank account. The process involves coordination with the National Payments Corporation of India for proper mapping. This complexity can lead to delays and confusion among workers.

Government’s Justification for ABPS

The government argues that ABPS improves transparency and reduces corruption. It claims that the system ensures faster payments and better tracking of funds. Despite these claims, the study suggests that the root cause of payment delays lies in inadequate funding rather than the payment system itself.

Future of ABPS and Financial Inclusion

ABPS is part of a broader initiative to enhance financial inclusion in India. The Aadhaar Enabled Payment System (AePS) aims to facilitate basic banking transactions using Aadhaar. This includes cash deposits, withdrawals, and fund transfers. The government hopes to expand the reach of financial services through this system.

Exemptions and Technical Issues

The government has stated that in cases of technical difficulties or Aadhaar-related problems, exemptions from ABPS may be granted. This decision comes amid criticism from opposition parties who argue that the system could exclude vulnerable populations from essential income.

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