The shift to Centre–State cost-sharing under VB-G RAM G may deepen inter-State wage disparities. Discuss with reference to fiscal federalism.
In this answer
Fiscal federalism requires that functions be matched with finances. MGNREGA, 2005 met unskilled wage costs almost entirely from the Union Budget; the VB-G RAM G Act, 2025 shifts to a Centrally Sponsored Scheme with Centre–State cost-sharing [1]. The design is fiscally rational, but its distributive effects across unequal States need scrutiny.
The changed funding architecture
- MGNREGA was open-ended and demand-driven, with wages a Central liability; VB-G RAM G moves to normative (supply-driven) allocation [1].
- Sharing pattern is 60:40 for most States, 90:10 for North-Eastern, Himalayan States and UTs [1].
- Simultaneously, the guarantee rises to 125 days and a statutory floor wage of ₹300/day applies from July 1, 2026, raising per-household cost that States must now partly bear [1][2].
Why inter-State disparities may widen
- Vertical fiscal imbalance: States incur the larger share of expenditure on a smaller share of own revenue; a new 40% liability functions like an unfunded mandate.
- The highest wage revisions went to fiscally stressed, high-demand States — Uttar Pradesh, Bihar, Jharkhand, Assam, Odisha and Chhattisgarh [2] — so their matching burden is largest precisely where capacity is weakest.
- Richer States can top up above the floor, while weaker States rationalise at ₹300; the floor risks becoming a ceiling.
- Under normative allocation, drought or distress years force States either to co-fund extra or ration work — weakening the entitlement unevenly.
Equalising counterweights
- The floor itself compressed the bottom: 21 States/UTs were raised to ₹300 and the national average rose from ₹298.8 to ₹327.4, with Arunachal Pradesh and Nagaland gaining ~24.5% [2].
- The 90:10 ratio for special-category States is explicitly redistributive [1].
- Co-financing can improve State ownership, asset quality and convergence with rural infrastructure planning [3].
Thus the Act equalises wage floors while devolving fiscal risk. Disparity is not inevitable: outcome-linked Finance Commission grants, a transparent revision formula indexed to prices, and capacity-weighted sharing for low-income States can align the reform with Article 41's right to work and cooperative federalism.
Sources
- 1The Viksit Bharat – Guarantee for Rozgar and Ajeevika Mission (Gramin) (VB–G RAM G) Bill, 2025 — PRS Legislative Researchreplacement of MGNREGA, 125 days, 60:40 and 90:10 cost-sharing, normative allocation
- 2Government Notifies Revised Wage Rates under the VB–G RAM G Act, 2025 — PIB, Ministry of Rural Development₹300 interim base wage, national average ₹298.8 → ₹327.4, 21 States/UTs at floor, State-wise increases
- 3Historic Commencement of Viksit Bharat – G RAM G Act Across Rural India from July 1st 2026 — PIBcommencement date and works/planning convergence