Examine the fiscal federalism implications of the differentiated Centre-State cost-sharing pattern under VB–G RAM G Act, 2025.

Q. Examine the fiscal federalism implications of the differentiated Centre-State cost-sharing pattern under VB–G RAM G Act, 2025. (15 marks, 250-350 words)

The Viksit Bharat–Guarantee for Rozgar and Aajeevika Mission (Gramin) Act, 2025, effective 1 July 2026, repeals MGNREGA and delivers the 125-day guarantee as a Centrally Sponsored Scheme with a differentiated funding formula — 90:10 for North-Eastern and Himalayan States and J&K, 60:40 for other States/UTs with legislature [1][2]. This design is federally equitable in intent but fiscally demanding in practice.

Design and rationale - Cost-sharing extends to wages, material and administrative costs, unlike MGNREGA where the Centre bore the full wage bill [1]. - The 90:10 tier recognises the narrow revenue base and high delivery costs of special-category and hill States — a principle consistent with Finance Commission-style equalisation [1].

Federal strengths - Skin-in-the-game funding can improve State ownership, work-site planning and social audit rigour, since States now co-finance outcomes. - Central share of ₹95,692.31 crore for FY 2026-27 with total outlay above ₹1.51 lakh crore signals continued Union commitment, not withdrawal [1]. - Differentiated ratios embed asymmetric federalism, aligning transfers with fiscal capacity rather than uniform treatment.

Fiscal federalism concerns - A 40% wage liability is a new, open-ended charge on general-category States; poorer high-demand States like Bihar, Odisha or Jharkhand face the largest burden precisely where demand for work peaks. - The scheme is demand-driven but State budgets are not — during drought or downturn, matching-share constraints may push States to ration work, blunting the Act's countercyclical safety-net role. - Larger CSS matching commitments compress States' untied fiscal space, a long-standing concern before successive Finance Commissions. - Transition risk: fund continuity during changeover has required interim Mother Sanctions and separate wage-rate notifications, demanding tight Centre-State coordination [2][3].

Overall, the differentiated pattern is a defensible attempt to marry equity with shared responsibility, but its success rests on execution. Transparent normative allocations, timely release of the Central share, and a flexible trigger allowing enhanced Union support in distress years would preserve the right to work while respecting State fiscal autonomy — advancing cooperative federalism and the Viksit Bharat @2047 goal of inclusive rural livelihood security.

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Sources: 1. FEDERAL CONTRIBUTION OF FUNDS UNDER VB-G RAM G, PIB — 90:10 and 60:40 sharing, wage/material/admin cost split, ₹95,692.31 crore Central share, Centrally Sponsored Scheme status 2. Historic Commencement of Viksit Bharat – G RAM G Act Across Rural India from July 1st 2026, PIB — commencement date, repeal of MGNREGA, 125-day guarantee, transitional arrangements 3. Government Notifies Revised Wage Rates under the VB–G RAM G Act, 2025, PIB — wage-rate notification during transition