Funding Structure Changes
The 2026-27 Union Budget allocates a hefty Rs 95,600 crore to the Viksit Bharat-G RAM G rural employment scheme. This marks an almost Rs 10,000 crore increase
compared to the Rs 86,000 crore allocated to MGNREGA in the previous financial year, 2025-26. The new scheme, however, shifts the funding dynamics. Under the new model, the central government will contribute 60% of the scheme's cost, while the remaining 40% will be borne by state governments. This represents a significant departure from the MGNREGA model, where the Centre largely covered wages and material expenses, leaving states with minimal financial obligations. This new framework, with its increased financial responsibilities for states, particularly impacts states struggling financially, potentially leading to limitations on the number of jobs available. The shift does not apply to northeastern and Himalayan states, which will continue to receive funding under the old 90 per cent and 10 per cent Centre-state funding split, respectively.
State Financial Implications
The revised funding structure of the VB-G RAM G scheme significantly alters the financial landscape for state governments. With states now responsible for 40% of the scheme's costs, they face a considerably higher financial burden compared to the previous MGNREGA model. State finance departments are carefully analyzing the fiscal impact of this change, with preliminary estimates suggesting that some states could face additional annual liabilities running into thousands of crores, depending on the demand for work. A senior officer tracking rural employment spending highlighted that, under MGNREGA, states often faced delays in receiving reimbursements, even with their limited contribution requirements. The expanded cost-sharing under VB-G RAM G could potentially lead to tighter caps on work generation, particularly in fiscally constrained states. The government has stated that the new framework aims to enhance efficiency, asset creation, and alignment with other rural development programs. However, the shift in funding raises concerns that the rights-based guarantee of work under MGNREGA, which mandated work on demand, might be compromised under the new fiscal model, potentially affecting employment opportunities.
MGNREGA vs. VB-G RAM G
MGNREGA, the previous rural employment scheme, was characterized by its rights-based guarantee, ensuring work on demand, irrespective of budget limits. The central government shouldered the bulk of the financial responsibility, covering most wage and material costs. In contrast, the VB-G RAM G scheme operates under a more conventional fiscal model, where states contribute a larger share of the funding. This change could impact the availability of employment, as the extent to which employment demand is met may increasingly depend on states' ability to mobilize funds and pay for the employment generated. While the government aims to improve efficiency and asset creation with the new framework, the shift away from a guaranteed employment model raises concerns about its impact on job availability, particularly in states with financial constraints. The total budget for VB-G RAM G is Rs 95,600 crore, signaling a continued commitment to rural employment, yet the altered funding mechanism places greater financial pressure on states, impacting job generation.
