The original promise of India’s rural employment guarantee was uncompromising: no rural household willing to work should go hungry for lack of work. The Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) was not merely a poverty alleviation programme; it was a constitutional assertion of responsibility, designed to shield rural livelihoods from economic distress.

Two decades later, the transition from MGNREGA to the Viksit Bharat–Guarantee for Rozgar and Ajeevika Mission (Gramin) (VB-G-RAM-G) appears, at first glance, to deepen this commitment. The guaranteed number of workdays has been raised from 100 to 125, and policy rhetoric now foregrounds productivity, asset creation, and long-term rural transformation.

Yet this expansion masks a more consequential shift. Beneath the language of reform lies a fundamental fiscal reworking of the employment guarantee. VB-G-RAM-G moves away from a centrally funded, demand-driven entitlement towards a shared-cost, normatively allocated scheme, significantly altering the fiscal responsibilities of States. This redesign raises a question that goes beyond political debate: can States absorb the additional financial burden without undermining the guarantee itself?

A decisive break from the MGNREGA framework

MGNREGA was distinctive among Indian welfare programmes. It was a legal entitlement, uncapped by annual budgets, with the Central government bearing the full wage cost. States financed material components and administration, accounting for a relatively small share of total spending. This design reflected a clear logic: employment demand rises during economic downturns, agrarian crises, or climate shocks, precisely when State revenues come under strain.

By absorbing wage costs, the Centre acted as a fiscal shock absorber, allowing the guarantee to expand automatically when distress deepened.

VB-G-RAM-G alters this compact in three ways. First, it raises the guaranteed workdays from 100 to 125. Second, it replaces the open-ended demand-driven framework with normative, pre-fixed allocations. Third, and most significantly, it mandates a 60:40 Centre-State funding ratio for most States, with a 90:10 split for special category States. The implication is clear: States are now required to co-finance a statutory employment guarantee without any commensurate increase in revenue-raising powers or fiscal headroom.

Quantifying the additional burden

Recent expenditure patterns under MGNREGS offer a concrete sense of the scale involved. Official data show that in 2023–24, total spending across States and Union Territories amounted to approximately ₹88,555 crore, underscoring the continuing centrality of public employment to rural livelihoods. Under the earlier regime, the Centre bore almost the entire wage bill and a substantial portion of other costs, leaving States with limited fiscal exposure.

Under VB-G-RAM-G, assuming similar demand for employment and a modest increase in costs due to the expansion in workdays, total programme expenditure could reasonably remain above ₹1 lakh crore. With a 60:40 cost-sharing arrangement, States would collectively be expected to fund around ₹40,000 crore or more each year.

This marks a sharp departure from earlier patterns, implying an additional annual fiscal burden running into several thousand crore rupees for States as a whole, with further pressure if demand exceeds normatively approved allocations.

Uneven fiscal impact across States

The fiscal strain imposed by VB-G-RAM-G will be uneven, falling most heavily on States with high programme utilisation, large rural populations, and limited fiscal capacity. In 2023–24, States such as Uttar Pradesh (₹11,396 crore), Bihar (₹7,896 crore), Madhya Pradesh (₹7,131 crore), Odisha (₹5,433 crore), and Jharkhand (₹3,781 crore) accounted for a substantial share of national MGNREGS expenditure.

Under a 60:40 cost-sharing framework, these spending levels imply annual State obligations of around ₹4,500 crore for Uttar Pradesh, over ₹3,000 crore for Bihar and Madhya Pradesh, and more than ₹2,000 crore for Odisha, assuming similar demand. For fiscally weaker States, absorbing such commitments would significantly compress already narrow budgetary space.

Southern States present a different but equally demanding picture. Tamil Nadu (₹13,393 crore), Andhra Pradesh (₹8,941 crore), Telangana (₹4,073 crore), and Kerala (₹3,969 crore) were among the largest spenders in 2023–24, reflecting sustained demand and effective implementation. Under VB-G-RAM-G, these totals translate into implied State contributions of over ₹5,000 crore for Tamil Nadu, nearly ₹3,600 crore for Andhra Pradesh, and around ₹1,600 crore each for Telangana and Kerala. With deficits already close to recommended limits and high committed expenditure on salaries, pensions, and interest payments, these States have little room to absorb higher co-financing without cutting back elsewhere.

Climate-vulnerable States such as Rajasthan (₹9,356 crore), Maharashtra (₹4,464 crore), and Karnataka (₹6,612 crore) illustrate the counter-cyclical risk embedded in the new framework. In years of agrarian distress, when employment demand rises sharply, a 60:40 split would require States like Rajasthan to mobilise nearly ₹3,700 crore and Karnataka over ₹2,600 crore to sustain comparable levels of work. If demand exceeds approved allocations, States would be forced to either finance the excess themselves or restrict access to work both outcomes weakening the spirit of a statutory guarantee designed to respond to rural distress.

Fiscal federalism under strain

The deeper concern raised by VB-G-RAM-G is not merely fiscal arithmetic, but fiscal federalism. Employment generation and poverty alleviation are constitutionally shared responsibilities, yet revenue mobilisation remains highly centralised. When the Centre redesigns a national entitlement while shifting costs downward, it risks creating unfunded mandates. Unlike discretionary schemes, a legal employment guarantee cannot be quietly scaled back without social and political consequences.

Fiscally weaker States may respond through informal rationing fewer workdays, delayed payments, or restricted registrations producing uneven implementation across the country. Over time, access to guaranteed work risks depending less on statutory rights and more on a State’s fiscal health.

Equally striking is what the reform leaves out. VB-G-RAM-G is not accompanied by any effort to strengthen State fiscal capacity like no higher vertical devolution, no shock-linked compensation, and no automatic stabilisers tied to employment demand. Without these safeguards, the employment guarantee risks becoming budget-constrained in practice, even if it remains rights-based in law.

A guarantee tested by fiscal reality

VB-G-RAM-G seeks to reorient rural employment towards asset creation and long-term development. Yet its fiscal design places States at the frontline of risk absorption. By expanding guarantees while decentralising costs, the Centre has shifted responsibility without matching capacity. Whether this transition strengthens cooperative federalism or deepens regional inequality will depend on how India finances its social commitments.

Employment guarantees cannot survive on intent alone; they require stable and equitable funding. For fiscally stretched States, VB-G-RAM-G is less a reform than a test of endurance.

The writers are Assistant Professors at Gulati Institute of Finance and Taxation (GIFT), Thiruvananthapuram.

Published on December 30, 2025