India’s new rural employment initiative, VB G RAM G, risks increasing state fiscal pressure without guaranteed job growth, as rural labour participation declines and funding responsibilities shift from Centre to states.
India’s new rural employment push, VB G RAM G, could leave state governments carrying a much heavier fiscal load without guaranteeing a matching rise in jobs, according to Dhananjay Sinha, chief executive and co-head of institutional equities at Systematix Group. In a report cited by Deccan Chronicle, Sinha argued that the shift away from MGNREGA may be arriving just as rural labour demand is already weakening, limiting the scheme’s near-term impact on consumption and household incomes.
Systematix’s analysis suggests state spending under the programme could climb to about ₹35,300 crore in FY27, almost four times the ₹8,690 crore states spent under MGNREGA last year. The burden is expected to rise sharply in several large states, including West Bengal, Uttar Pradesh, Punjab and Karnataka, where the outlay could rise by 24 times, 21.3 times, six times and 5.6 times respectively, according to the report as described by Deccan Chronicle and echoed in other coverage of the scheme’s funding model.
The concern is not just the size of the bill but the way the programme is structured. Moneycontrol reported that VB G RAM G uses a 60:40 Centre-state funding split, marking a significant transfer of responsibility to state treasuries. That matters because, under the old system, MGNREGA was demand-driven, while the new framework is more tightly linked to budget allocations from the top, which could cap employment even in periods of acute rural stress.
That stress is already visible in the labour numbers. Deccan Chronicle reported that rural person-days fell to 622.6 million in the first quarter of FY27, nearly 40% below the same period a year earlier, and that the 12-month average has dropped to a 12-year low. Sinha also pointed to wages under MGNREGA that remain well below prevailing rural market rates, discouraging participation, while added compliance requirements under VB G RAM G, including biometric attendance and e-KYC, may create fresh bottlenecks. With the scheme only just being rolled out, the broader question is whether it can strengthen rural incomes quickly enough to justify the higher fiscal strain on states.
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