This study attempts to understand the inter-relationship among various intra-system processes (social, economic, agrarian and administrative), through the study of an Indian national rural welfare scheme, the National Rural Employment Guarantee Scheme (NREGS). A two-folded methodology is used, namely, interview based field study for in depth understanding of the dynamics, followed by statistical analysis of a survey conducted of the scheme beneficiaries. This study reveals that in the persistence of traditional rural socio-economic structures, the democratic local governance process has been emerging as a powerful tool of empowering the people for self-governance. The administrative processes are observed to have played a significant role in this transformation process in India. This study concludes by speculating the results as a step forward in the long journey of 'good governance'.