VB-G RAM G: A potential rural income hike comes with a burden
The Viksit Bharat – Guarantee for Rozgar and Ajeevika Mission (Gramin) Act, 2025, known as VB-G RAM G, replaced MGNREGS effective July 1, 2026, marking the most significant restructuring of India's rural employment guarantee in two decades.
The new scheme raises guaranteed employment from 100 to 125 days per year and increases the national average notified daily wage from ₹298.8 to ₹327.4 — an average rise of ₹28.6 per day.
The central government has announced an interim allocation of ₹95,692 crore for 2026–27 to ensure smooth transition.
Unlike MGNREGS — where the Centre bore 100% of the wage bill — VB-G RAM G introduces a 60:40 (Centre:State) cost-sharing ratio for general states, and 90:10 for Northeastern and Himalayan states.
High-demand states such as Rajasthan, Andhra Pradesh, and Tamil Nadu face a projected four-to-five-fold increase in their financial contribution under the new formula, raising concerns about budgetary strain and scheme effectiveness.
Centrally Sponsored Schemes vs. Central Sector Schemes
Centrally Sponsored Schemes (CSS) are funded jointly by the Centre and states and implemented by state governments, while Central Sector Schemes are 100% centrally funded and implemented by central agencies. MGNREGS was effectively a central-funded demand-driven entitlement where the Centre bore the full wage cost; VB-G RAM G converts it into a cost-sharing CSS model where states must co-finance 40% of wages, materials, and administration.
Key Details
- Under MGNREGS (2005), the Centre paid 100% of wages — making it unusual among large schemes in bearing the full cost.
- VB-G RAM G uses a 60:40 Centre-State ratio for general states, 90:10 for NE and Himalayan states, and 100% central funding for UTs without legislatures.
- The final allocation formula will be aligned with the 16th Finance Commission's horizontal devolution formula.
- States must bear any expenditure exceeding the central normative allocation; they also continue to fund unemployment allowances and delay-compensation penalties.
The shift from a demand-driven, Centre-funded scheme to a budget-capped, cost-shared CSS is the core fiscal change that could force states to make difficult trade-offs between rural employment and other spending priorities.
Demand-Driven Entitlement vs. Budget-Capped Framework
MGNREGS was unique in being a demand-driven legal entitlement: the State was obligated to provide work whenever a rural household applied, and central funds scaled to meet demand. VB-G RAM G creates a hybrid: individuals retain a legal right to 125 days of work, but actual implementation is constrained by "normative allocations" fixed annually by the Centre — converting a demand-driven right into a supply-constrained entitlement.
Key Details
- Under the old framework, there was no cap on central expenditure — it rose with rural demand.
- Under the new framework, a fixed central allocation is determined upfront; states absorb excess demand costs.
- The Yuktdhara portal (geospatial planning) and PM Gati Shakti integration are mandated for spatial planning of works.
- Biometric authentication and real-time geo-tagging requirements are introduced for implementation tracking.
- States may declare a 60-day "no-work window" during peak agricultural seasons (sowing/harvesting) while still honoring the 125-day guarantee over the full year.
The fiscal burden argument rests on this structural shift — states that generate high demand under the scheme now must co-finance a 40% share of costs they had no obligation to bear under MGNREGS.
Fiscal Federalism and Constitutional Principles
Fiscal federalism refers to the constitutional and financial arrangements governing revenue-sharing, expenditure responsibilities, and grant distribution between the Union and states. The Constitution places rural development and welfare primarily under the State List (Seventh Schedule) but allows the Centre to legislate on employment guarantee schemes under the Concurrent List and Article 282 grants. The 16th Finance Commission's role in determining horizontal devolution is now explicitly referenced in the scheme's allocation formula.
Key Details
- Article 41 (DPSP) directs the State to make provision for securing the right to work.
- Article 282 empowers the Union to make grants for public purposes even outside its legislative domain.
- Finance Commissions (Articles 280–281) determine the basis for tax devolution and grants-in-aid.
- The controversy over VB-G RAM G echoes earlier debates on centralization vs. cooperative federalism in the design of flagship welfare programs.
- States with higher incidence of rural poverty — and thus higher demand for guaranteed employment — face disproportionate fiscal strain under the new formula.
The redesign of VB-G RAM G funding is being contested on federalism grounds, as it transfers fiscal risk from the Centre to states precisely for a program where demand is highest in the poorest states.
- Full form: Viksit Bharat – Guarantee for Rozgar and Ajeevika Mission (Gramin)
- Effective date: July 1, 2026; replaces MGNREGS (2005)
- Employment guarantee: Increased from 100 days (MGNREGS) to 125 days per year
- Daily wage: National average ₹327.4/day (up from ₹298.8 under MGNREGS; +₹28.6/day)
- Funding ratio — general states: Centre 60% : State 40%
- Funding ratio — NE/Himalayan states: Centre 90% : State 10%
- Central allocation 2026–27: ₹95,692 crore (interim)
- Allocation formula basis: 16th Finance Commission's horizontal devolution formula
- Agricultural pause: Up to 60 days/year declared by states during sowing/harvesting
- MGNREGS wage burden borne by Centre: 100% (old system)
- State wage burden increase estimate: 4–5 times for high-demand states
- Planning platforms mandated: Yuktdhara portal, PM Gati Shakti