Summaries Unemployment and underemployment, in association with low and irregular incomes, are major causes of urban poverty in India. The increasing importance of urban poverty, together with unfavourable labour market developments, have, therefore, prompted the Indian Government to initiate urban employment programmes. This article describes the functioning of the urban employment generating programme ‘Nehru Rozgar Yojana’ aimed at reducing urban poverty through promoting the set‐up of micro‐enterprises. Drawing on empirical experience, this article analyses the institutional and organisational constraints in programme implementation as well as their impact on the so‐called beneficiaries of the programme.