VG RAM G may raise rural incomes but higher fiscal burden on states could limit economic gains: Report
New Delhi, July 6
The newly launched Viksit Bharat-Guarantee for Rozgar and Ajeevika Mission, which replaces the Mahatma Gandhi National Rural Employment Guarantee Act, promises higher rural incomes through 125 days of guaranteed employment and increased wages, but its long-term impact on India's rural economy may depend on whether states can absorb the significantly higher fiscal burden, according to a report by Systematix Research.
The report said the revamped scheme raises the statutory employment guarantee from 100 days to 125 days annually and increases the average daily wage by nearly 10 per cent to Rs 327 from Rs 299. These measures are expected to strengthen purchasing power and support rural demand at a time when rural wages and incomes have remained under pressure.
However, the report cautioned that the structural changes in the scheme could weaken its overall effectiveness. It noted, "India's flagship rural jobs guarantee has been rewritten... with a bigger headline promise, 125 guaranteed days of work instead of 100... but a fundamentally different architecture underneath: centrally capped funding in place of open-ended demand."
A major concern highlighted in the report is the shift in funding responsibility from the Centre to the states. Under the new framework, most states will now share costs in a 60:40 Centre-state ratio, compared with the earlier arrangement where the Centre bore the overwhelming share of expenditure.
According to the report's estimates, state governments may have to spend around Rs 35,300 crore in FY27 compared with about Rs 8,690 crore in FY26, implying more than a four-fold increase in their contribution.
The report stated, "Both the FY27 interim-allocation estimate and the FY14-FY26 counterfactual point in the same direction: the overall burden on states in funding VB-G RAM G could rise by four to five times their contribution under the outgoing MGNREGA scheme."
It warned that fiscally constrained states may have to make difficult budgetary choices by either increasing revenue expenditure, reducing capital expenditure or scaling back other welfare programmes to finance the scheme.
The report further observed that despite higher notified wages and longer employment guarantees, actual rural demand may not improve substantially if implementation remains constrained by funding shortages and declining employment trends.
It added, "Given the tight fiscal position of most states, funding VB-G RAM G would require significant trade-offs... curtailing capital expenditure to accommodate the additional revenue spending; or significantly scaling back other cash-transfer schemes."
While the report acknowledged that the scheme aims to create durable rural infrastructure and improve accountability, it concluded that its success in reviving the rural economy would depend on how the funding model, state finances and implementation challenges evolve in the coming years.
— ANI
Reader Comments
The wage increase is modest—10% more when inflation has been eating away at rural incomes for years. And yes, the Centre pushing costs onto states is a strategic shift. If states have to cut capital expenditure to fund this, that hurts long-term growth. A flawed design. 😕
Finally, a step toward real change! Increased employment days and wages will directly boost rural demand. I trust our states can manage the finances—they have experience with schemes like Rythu Bandhu in Telangana. Let's focus on implementation rather than just analyzing fiscal numbers. 👏
The shift to capped central funding is worrying. MGNREGA's open-ended demand-based model was its strength. Now, with a fixed allocation, states might delay payments or ration work. I've seen similar schemes in Australia where funding caps led to huge waitlists. Not a good precedent. 🤔
MGNREGA was never perfect—delays, corruption, lack of assets. But replacing it with a scheme that shifts burden to states and caps funding? That's like treating a headache with a larger dose of aspirin and then charging the patient more. States like Bihar will really struggle. 😑
The report is right to flag the risk: states might scale back other welfare schemes to fund this. In UP, where finances are tight, we could see cuts to healthcare or education budgets to make up the Rs 35,000 crore shortfall. That would be a terrible trade-off. Please think carefully, policymakers! 🙏
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