New Delhi: With the Opposition and farm activists amplifying their protests over how the Vikshit Bharat–Guarantee for Rozgar and Ajeevika Mission (Gramin) or VB-GRAMG will increase the financial burden of states, a report by SBI Research has called such fears “unfounded” and stemming from “lack of understanding of state finances”.
The VB-G RAM G law replaced the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), the world’s largest rural employment programme. One of the major criticisms of the new law revolves around the funding pattern where the Centre and states share has been revised to 60:40. Earlier, the Centre’s contribution was 100 per cent. Now, states will have to shell out 40 percent of the funding, except in the Northeast and Himalayan states, where the state’s share will be 10 percent.
“We believe that the fear of the revised ratio deteriorating the states’ finances through increased borrowing is unfounded and stems from lack of understanding of state finances… As per extant provisions, the yearly borrowing limit (fiscal deficit) of states are fixed to an annual limit of 3 percent of their Gross State Domestic Product (GSDP). Hence, there is zero scope of states deviating from their borrowing limits as has been argued by some because of the new 60/40 mechanism,” the report released Monday evening says.
The report further states that data shows that, in fact, a significant majority of the states (up to 20 out of 28) have “under borrowed” compared to their budgeted borrowing limits in the last couple of years.
“What is important is reorientation of select state expenditures towards productive needs… As fiscal deficit is ~ revenue deficit + capital expenditure, it is important to anchor revenue deficit to fiscal deficit within manageable proportions, so that capital expenditure is maintained at healthy levels and not crowded out by higher revenue deficits,” the report adds.
Under MGNREGA, states used to bear unemployment allowance, 25 percent of the material costs and the state-level administrative expenses.
“It is estimated that if the legislation is implemented across the entire country, the annual requirement for wage, material and administrative components of Rs 1,51,282 crore, inclusive of the state share, the estimated Central share alone is Rs 95,692.31 crore (which is 63 percent). This is 11 percent higher than the total budget allocation to MGNREGA programme in FY26 (Rs 86,000 crore), which clearly underscores the continued and substantial fiscal commitment of the Centre towards the scheme,” the report adds.
However, the report adds that by considering the increased scope of work, it believes states will increase/realign their rural development budget, in line with VB-G RAM G priorities that will clearly have a cascading impact on consumption.
The report also mentions that over the years, the budget allocation under MGNREGA has increased steadily. The budget allocation for the financial year 2006-07 was Rs 11,300 crore, which increased to Rs 86,000 crore in 2025-26, which is the highest ever budgetary allocation as per budget estimate (BE).
In fact, an analysis by SBI research shows that revised fund (RE) allocation has been consistently higher/nearly the same as BE from FY15 onwards (Rs 1.6 lakh crore additional amount has been disbursed over the BE) as opposed to before FY15 when RE was mostly lower than BE (Rs 10,000 crore lower amount disbursed over BE).
“During the last 19 years (FY07-FY25), the government has spent Rs 9.95 lakh crore under MGNREGA, with 80 percent funds (Rs 7.8 lakh crore) released during FY15 to FY25. In the current year 2025-26, Rs 45,783 crore has been already released.”
In the current year 2025-26, Rs 45,783 crore has been already released.
Social activists, however, called the SBI Research report a “cheerleading exercise”.
Nikhil Dey, founding member of Mazdoor Kisan Shakti Sangathan and who is one of the principal architects of MGNREGA said that SBI Research seems to be under a lot of pressure.
“The main thing is this model where the government is deciding what is Vikshit Bharat, what is PM-GATI, and you are now saying we will put a law in place by which states will have to contribute 40 percent to our vision of growth, our vision of the economy. Today it is MGNREGA, tomorrow you will do it for Har Ghar Nal Se Jal, PM- Kisan, for everything. So far you did it in a manner where you gave an option to states. But this is like a complete fiat. They have not asked anyone, they have not given an option, they have not held consultation with anyone,” he added.
‘VB-G RAM G will bring down inefficiency’
The report also highlights how VB-G RAM G will bring down inefficiency linked to MGNREGA.
During FY25, 5.78 crore households (HHs) worked under MGNREGA against the Centre’s release of Rs 85,334 crore. This translated into an expenditure of Rs 14,755 per household with wide variation among states.
“We have done an analysis of 18 major states (where 5.46 crore HHs worked) and by juxtaposing the average expenditure done by four efficient states per household, we found that with the given Central release, total 6.64 crore households could have got employed… This shows that inefficiency among states, structural weakness and misappropriation of amount lead to loss of employment to 1.22 crore HHs under MGNREGA in a single fiscal year,” the report states.
Under the new Act, provisions like biometric authentication, spatial technology–based planning, digital monitoring, weekly public disclosure and strengthened social audits will bring efficiency and transparency, the report notes.
The research by SBI further mentions that with the operationalisation of VB-G RAM G, the architecture of the scheme is increasingly transitioning from a purely “demand-driven framework” towards one that “emphasises outcomes, accountability and responsiveness to local needs”.
The fund sharing between the Centre and states under the new VB-G RAM G will be based on normative assessment, the report states.
The report adds that if major states are ranked based on outstanding liabilities and guarantees in FY24 vis-à-vis MGNREGA allocation for the same year, states with higher fiscal burden are ranked lower and similarly states with higher MGNREGA allocation are ranked lower.
“The positive trendline indicates that states, which have higher fiscal burden (outstanding liabilities + guarantees as % of GDP) have received higher allocation under MGNREGA, thereby delineating that the fear that more fiscally stressed states will be impacted greater under new Act is factually incorrect.”
Dey went on to say that SBI Research has gone on to say two contradictory things in the report. “First they are saying there has been great MGNREGA progress in the last 10 years. But if there is such great progress then what is the need for repealing it? They are saying in so many villages, water vulnerability has come down because of work done under MGNREGA … if that is the case then why repeal, why not go with the same model.”
MGNREGA did provide jobs, Dey said. “It was not 60 percent but more than 60 percent of its budget and minimum wages was below what MGNREGA paid. I agree, there was inefficiency but that is because their managers did not manage it well. There was corruption in MGNREGA but corruption in MGNREGA came to light very quickly because there was so much transparency in the program from the time it began. This new law unfortunately is going to be top down ….”
Average wage per person per day will increase
Under MGNREGA, the average wage per person per day has increased from an average of Rs 88 during FY07-FY12 to currently around Rs 267.
“However, if we see in real terms, the wage has not increased much. The average wage per person has increased 10 percent in FY25 compared to what it was during FY08-FY12,” the report adds.
A centrally sponsored scheme, the report notes, is expected to usher in better compensation for workers that, along with current low inflation, will help in better realisation of real wages
Not only will the average wage per person increase, there will also be an increase in the nature of work under the new law.
VB-G RAM G, the report states, is expected to increase average days of employment with the increase in nature of work to 125 days. As against this, the average number of days of employment provided per household under MGNREGA has gradually increased to 50.4 during FY 21-25 from 45.9 during FY 07-13 as against the guaranteed 100 days of employment.
“Also, the aspirations, with states’ active participation and robust penalty mechanism, should ensure dissipating the persisting gap between work provided and work demanded (around 14 percent since FY20) as the scheme often engages in work misaligned with changing economic priorities,” the report stresses.
Better assets
Since the inception year FY07, 9.6 crore rural assets have been created. Of which, 8.07 crore rural assets were created during the last decade (FY15-25), which indicate government’s efforts have led to a remarkable increase in the creation of rural assets, which are geotagged and of better quality.
The new Act will emphasise on four domains: Water security, core rural infrastructure, livelihood-related infrastructure and climate resilience, which will lead to better asset creation, and geotagged into the Viksit Bharat National Rural Infrastructure Stack, spatially integrate with national systems such as PM Gati Shakti, ensuring optimal benefits.
“The overhaul of the erstwhile MGNREGA through the VB-G RAM G aims to weave transformative practices and strategies factoring challenges of competitive project identification, productive asset creation, superior income generation and efficient monitoring mechanism, fixing structural weaknesses while enhancing employment, transparency, planning and accountability at all levels,” the report mentions.
This is an updated version of the report
(Edited by Viny Mishra)
Also read: Congress to launch ‘MGNREGA Bachao Andolan’ on 5 January against Modi govt’s VB-G RAM G law