States still in the money as VB-G RAM G promises Rs 17,000 crore gain: SBI

States are likely to emerge as net beneficiaries under the proposed Viksit Bharat Guarantee for Rozgar and Ajeevika Mission (VB-G RAM G) Act, with collective gains estimated at around Rs 17,000 crore despite a shift to a 60:40 funding pattern between the Centre and states, according to a report by the State Bank of India (SBI).

The report argues that the revised framework not only preserves states’ fiscal position but also creates room for higher allocations when assessed through objective, normative criteria. It adds that states can further scale up the scheme by increasing their own contribution under the new structure.

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Using a simulated scenario based solely on the Centre’s share, SBI found that states would together gain about Rs 17,000 crore compared with the average allocation over the past seven years. The assessment is built on seven parameters anchored around equity and efficiency.

“We estimate the States gain around approx. Rs 17,000 crores when compared to average allocation of last 7 years, hinting at a scenario where most of the states will be net gainers.”

Since the Bill was introduced, the proposed change in the funding ratio to 60:40 for most states -- excluding the North-Eastern states, Union Territories and Himalayan states -- has triggered debate. Critics have argued that the shift could place additional fiscal pressure on states and potentially force higher borrowing.

SBI, however, dismissed these concerns, saying they are largely rooted in a misreading of state finances. According to the report, when allocations are evaluated using objective and normative benchmarks, the revised framework actually improves fund distribution in favour of states.

As part of its analysis, SBI calculated each state’s share as a proportion of the total allocation across individual parameters and compared this with the average allocation under the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) between FY19 and FY25, excluding the pandemic-hit FY21.

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The results show that most states gain under the new framework, with only two registering marginal losses. In Tamil Nadu’s case, the report noted that if the FY24 allocation — an outlier marked by a 29 per cent jump over the average of FY22 and FY23 — is excluded, the loss becomes negligible.

Uttar Pradesh and Maharashtra emerged as the biggest gainers, followed by Bihar, Chhattisgarh and Gujarat.

Overall, SBI said that adopting objective criteria for allocation can improve devolution outcomes for both more developed and lagging states, while retaining a balance between equity and efficiency. It added that states can further enhance outcomes by effectively utilising their 40 per cent contribution under the revised funding model.

The VB-G RAM G Bill was passed by Parliament during the recently concluded winter session, with the Rajya Sabha approving the legislation hours after it cleared the Lok Sabha. President Droupadi Murmu gave her assent to the Bill on December 21.

The new law guarantees 125 days of wage employment per rural household, up from the existing 100 days, for adult members willing to undertake unskilled manual work.