Indian states are adjusting to a new funding formula for the rural employment guarantee scheme, raising questions about decentralised governance and rural livelihoods amidst political and budgetary pressures.
States may grumble when the Union government shifts part of a fiscal burden on to them, especially on a programme they had long assumed would remain centrally funded. That is exactly what has happened with the rural employment guarantee scheme, now rebranded as Viksit Bharat – Guarantee for Rozgar and Ajeevika Mission (Gramin), or VB-G RAM-G. After two decades in which New Delhi picked up the full wage bill, the Centre has changed the funding formula and asked states to contribute 40% of the cost, with the Union government paying 60%. Himalayan and north-eastern states face a 90:10 split, while Union territories without legislatures remain fully funded by the Centre.
The political backlash has been loudest in Opposition-ruled states, which have cast the move as a blow to decentralised governance and rural livelihoods. Yet the resentment is not confined to one side of the aisle. Bharatiya Janata Party-led states have also felt the strain, even if more quietly, because budgets are tight and many expenditures are difficult to cut. The issue is not just political theatre. For rural households, the scheme has long acted as a wage floor, offering income support when other work is scarce. Economically, that means states are being pushed to help finance a programme they argue is essential to keeping rural wages from collapsing.
The numbers in this year’s state budgets suggest that, for all the objections, most governments are adapting to the new arrangement. Tamil Nadu has provided Rs 5,057 crore, exactly 40% of its total VB-G RAM-G estimate of Rs 12,642 crore for 2026-27, according to its Budget presentation on August 5. Karnataka has set aside Rs 3,806.61 crore, Telangana Rs 2,550.21 crore and Jharkhand Rs 1,853 crore, all matching the new 40% formula. Kerala, Punjab and Himachal Pradesh have allocated less than their eventual share so far, but more may follow during the year. Tamil Nadu has also said it will fund an extra 25 days of work, taking the guarantee to 150 days and adding Rs 100 crore of state spending.
The broader budget picture shows why the programme remains central to rural policy even as the financing structure changes. Livemint reported that the Union Budget for 2026-27 set aside Rs 95,692 crore for VB-G RAM-G and Rs 30,000 crore for the older MGNREGA head, while The Economic Times said VB-G RAM-G alone accounts for about 40% of the Department of Rural Development’s allocation and, together with the rural housing scheme, makes up 63% of the department’s gross expenditure. A PIB release dated July 16 said interim allocations across states and Union territories had already reached Rs 93,841.69 crore, with Rs 25,495.32 crore released in the first instalment. Taken together, those figures underline the scale of the government’s commitment, but also the reality that states, however reluctantly, are now part of the bill.
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