The shift to Centre–State cost-sharing under VB-G RAM G may deepen inter-State wage disparities. Discuss with reference to fiscal federalism.

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.