The effect of the Mahatma Gandhi National Rural Employment Guarantee Act on the size of outstanding debts in rural India

MGNREGA was introduced in India in 2005 with the aim to improve the livelihood of rural Indian households. In 2012-13, around 156 million rural Indian households had an outstanding personal debt; 85% of the amount of credit being disbursed was given to those households in the bottom income decile for ‘non-business’ related purposes. This paper uses nationally representative household data from the NSS EUS collected in 2004-05 and 2009-10 to look at the impact MGNREGA has had on the rural households’ ability to repay outstanding debt. Results suggests that MGNREGA reduced the size of the outstanding debts for vulnerable households.