Discuss how the shift from MGNREGA to VB-G RAM G alters the fiscal federalism dynamics of rural employment guarantee schemes in India.

Q. Discuss how the shift from MGNREGA to VB-G RAM G alters the fiscal federalism dynamics of rural employment guarantee schemes in India. (15 marks, 250-350 words)

The Viksit Bharat – Guarantee for Rozgar and Ajeevika Mission (Gramin) Act, 2025, in force from 01.07.2026, replaced MGNREGA, 2005 and raised the guarantee from 100 to 125 days per rural household [1][2]. By replacing near-complete Central financing of wages with a shared funding formula, it recasts rural employment guarantee from a largely Union fiscal obligation into a joint Centre–State one.

From Central obligation to shared burden - Under MGNREGA, the unskilled wage component was 100% Centre-funded, insulating states from demand-driven cost spikes. - VB-G RAM G shares wages, material and administrative costs in a 60:40 ratio, with 90:10 for North-Eastern and Himalayan states and full Central funding for UTs without legislatures [2]. - For FY2026-27, the Centre provided ₹95,692.31 crore, with the first instalment of about ₹25,863 crore released to states [3][4].

Altered federal dynamics - Fiscal asymmetry: poorer, high-migration states with the largest work demand must now find the matching 40%, so demand-side pressure translates directly into state fiscal stress. - Counter-cyclical capacity weakened: distress-driven surges in demand now coincide with the states' own revenue squeeze, unlike the earlier Central absorption of that risk. - Centre's allocative discretion: the Act empowers the Union to fix State-wise normative allocation on prescribed parameters, strengthening the Centre's role in determining entitlement funding [2]. - Cooperative-federal argument: co-financing can deepen state ownership, better asset selection and stricter monitoring, while the differentiated ratios retain equity for special-category states.

The shift therefore does not dilute the statutory nature of the guarantee, but relocates part of its fiscal risk to the states while concentrating allocative authority at the Centre. A workable balance would tie state shares to fiscal capacity, guarantee a Central backstop for demand surges in distress years, and route disputes through the GST Council-style consultative route so that the right to work rests on predictable, adequately funded cooperative federalism.

(~315 words)

Sources: 1. VB-G RAM G Act 2025 Guarantees 125 Days of Rural Employment (PIB) — commencement, replacement of MGNREGA, 125-day guarantee 2. PRS Legislative Research — The VB–G RAM G Bill, 2025 — 60:40 and 90:10 cost-sharing across wages/material/admin; Centre's normative State-wise allocation power 3. Provision of ₹95,692 crore for VB-G RAM G in FY2026-27 (News on Air, Prasar Bharati) — FY2026-27 Central provision 4. Release of First Instalment of ₹25,863 Crore to States under VB-G-RAM-G (PIB) — first instalment released to states