Pending dues to States under MGNREGA at the time of its repeal highlight tensions in cooperative federalism. Discuss with reference to Centre–State financial relations.

MGNREGA, 2005 was repealed on 1 July 2026 and replaced by the Viksit Bharat–G RAM G Act, 2025 [1][2] — even as ₹17,144.13 crore remained outstanding to 34 States/UTs [5]. Unpaid liabilities at the moment of statutory transition expose the fiscal fault lines beneath India's cooperative federalism.

Why pending dues become a federal stress point

• MGNREGA was a Centre-funded statutory entitlement executed by States: wages borne by the Union via DBT, works planned and supervised by Gram Panchayats under the 73rd Amendment [4]. States front-load spending and await reimbursement.
• Of the arrears, ₹7,846.25 crore were wage liabilities [5] — a cash-flow burden on States with limited borrowing headroom.
• Section 27 allowed the Centre to stop funds for non-compliance (invoked against West Bengal from 2022), converting a fiscal instrument into political leverage.

Implications for Centre–State financial relations

• Asymmetry of cost and control: States absorb the administrative and political fallout of unmet work demand while the fiscal levers sit with the Union — a vertical imbalance untouched by Finance Commission devolution.
• Repeal without settlement leaves accrued claims legally ambiguous; workers' wage entitlements arise under a statute no longer in force.
• Growing reliance on tied Centrally Sponsored Scheme transfers narrows States' untied fiscal space.

The Centre's case and mitigating factors

• The scheme is demand-driven; allocations are revised at the Revised Estimate stage, and the Government has stated that pending wage liabilities up to FY 2024–25 were cleared, with over 96% of Fund Transfer Orders generated within 15 days [4].
• Transition support includes a ₹95,692.31 crore allocation for FY 2026–27, a 125-day guarantee and a higher administrative expenditure ceiling (6%→9%) [1][3].

The dispute is less about quantum than about predictability of fiscal flows. A time-bound reimbursement calendar, a public fund-flow dashboard, and referral of transfer disputes to the Inter-State Council (Article 263) would convert an adversarial settlement into shared stewardship — ensuring the new guarantee begins on trust rather than arrears.