VB-G RAM G: A potential rural income hike comes with a burden

New Delhi: The newly launched Viksit Bharat-Guarantee for Rozgar and Ajeevika Mission (Gramin) (VB-G RAM G), which replaces the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), promises higher rural incomes through 125 days of guaranteed employment and increased wages, but its long-term impact on India's rural economy may depend on whether states can absorb the significantly higher fiscal burden, according to a report by Systematix Research.

The report said the revamped scheme raises the statutory employment guarantee from 100 days to 125 days annually and increases the average daily wage by nearly 10 per cent to Rs 327 from Rs 299. These measures are expected to strengthen purchasing power and support rural demand at a time when rural wages and incomes have remained under pressure.

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However, the report cautioned that the structural changes in the scheme could weaken its overall effectiveness. It noted, "India's flagship rural jobs guarantee has been rewritten... with a bigger headline promise, 125 guaranteed days of work instead of 100... but a fundamentally different architecture underneath: centrally capped funding in place of open-ended demand."

A major concern highlighted in the report is the shift in funding responsibility from the Centre to the states. Under the new framework, most states will now share costs in a 60:40 Centre-state ratio, compared with the earlier arrangement where the Centre bore the overwhelming share of expenditure.

According to the report's estimates, state governments may have to spend around Rs 35,300 crore in FY27 compared with about Rs 8,690 crore in FY26, implying more than a four-fold increase in their contribution.

The report stated, "Both the FY27 interim-allocation estimate and the FY14-FY26 counterfactual point in the same direction: the overall burden on states in funding VB-G RAM G could rise by four to five times their contribution under the outgoing MGNREGA scheme."

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It warned that fiscally constrained states may have to make difficult budgetary choices by either increasing revenue expenditure, reducing capital expenditure or scaling back other welfare programmes to finance the scheme.

The report further observed that despite higher notified wages and longer employment guarantees, actual rural demand may not improve substantially if implementation remains constrained by funding shortages and declining employment trends.

It added, "Given the tight fiscal position of most states, funding VB-G RAM G would require significant trade-offs... curtailing capital expenditure to accommodate the additional revenue spending; or significantly scaling back other cash-transfer schemes."

While the report acknowledged that the scheme aims to create durable rural infrastructure and improve accountability, it concluded that its success in reviving the rural economy would depend on how the funding model, state finances and implementation challenges evolve in the coming years.