From July 1, 2026, the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) will be replaced by the Viksit Bharat-Guarantee for Rozgar and Ajeevika Mission (Gramin), abbreviated VB-G RAM G, marking the most significant transformation of India’s rural employment guarantee architecture since the original Act came into force in 2006. This transition is a critical topic for UPSC and SSC aspirants given its implications for fiscal federalism, social security rights, and the legal character of employment guarantees in India.
The fundamental shift — from a legally enforceable “demand-driven framework” to a “supply-driven scheme” with capped budgetary allocations — raises serious questions about whether the new system continues to honour the legal guarantee character that distinguished MGNREGA from ordinary government schemes. Under MGNREGA, any adult member of a rural household demanding work was legally entitled to it within 15 days, failing which unemployment allowance had to be paid; this entitlement-based architecture is now being replaced by allocations determined through “objective parameters” set unilaterally by the Union government.
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This topic carries deep significance for federalism studies, since it simultaneously shifts the financial burden onto states (from 10% to 40% of total expenditure) while concentrating greater discretionary power over fund distribution in the Union government — a combination several states, including BJP-ruled Madhya Pradesh, Bihar, and Jharkhand, have publicly questioned.
Background and Context
Five Important Key Points
- VB-G RAM G replaces MGNREGA from July 1, 2026, shifting from a universal, legally enforceable demand-driven framework to a supply-driven scheme with allocations capped within a fixed budget determined by the Union government.
- The new Act increases guaranteed workdays from 100 to 125 annually but simultaneously raises the states’ financial burden from the previous 10% share to 40% of total expenditure, compared to the earlier 90:10 Centre-state cost-sharing arrangement under MGNREGA.
- Section 5(1) of the new law empowers the Union government to “notify rural areas” where the scheme will operate, departing from MGNREGA’s universal applicability, and introduces a “blackout period” pausing the programme during peak agricultural seasons.
- At least three states — Madhya Pradesh, Bihar, and Jharkhand — have formally questioned the shift in the financial model, while five states have sought wage rate revisions and four have raised concerns over the mandated 60 non-working days during peak agricultural season.
- Under the draft rules, the Union government will determine inter-state fund distribution based on “objective parameters” similar to those used by the 16th Finance Commission for horizontal devolution, but the exact application methodology remains at the Centre’s discretion — a provision critics call a mechanism for centralising control.
Legislative and Legal Framework
MGNREGA, enacted in 2006, was widely regarded as a landmark rights-based legislation guaranteeing a justiciable right to work — one of the few social welfare laws in India enforceable through legal recourse if the state failed to provide employment within the statutory period. The shift to VB-G RAM G’s supply-driven, budget-capped model fundamentally alters this rights-based character, since allocations are now determined by administrative parameters rather than actual demand for work, raising constitutional questions about whether this dilutes the right to livelihood implicit under Article 21 of the Constitution, as interpreted in cases linking the right to life with dignified livelihood.
Fiscal Federalism Concerns
The financial restructuring represents one of the most consequential aspects of this reform. Under MGNREGA, the Union government bore 100% of labour wage costs and 75% of material costs, translating to an effective 90:10 cost-sharing ratio. VB-G RAM G’s requirement that states bear up to 40% of total expenditure represents a fourfold increase in the states’ financial obligation, creating significant strain on state budgets, particularly for fiscally constrained states already grappling with competing developmental priorities.
Bihar’s Specific Concerns and Wage Demands
Bihar’s objections deserve particular attention given the state’s heavy historical dependence on rural employment guarantee schemes for distress migration mitigation. Bihar has specifically demanded that wages be increased from the present ₹255 to ₹413 per day, a request reflecting genuine concerns about wage adequacy given rising costs of living, especially as Bihar continues to experience high rates of seasonal labour migration to other states. Given Bihar’s substantial rural workforce dependent on MGNREGA-type employment, particularly during agricultural lean seasons, any disruption or reduction in real wage value under the new scheme could exacerbate distress migration patterns that successive Bihar governments have sought to curb through employment guarantee programmes.
Centralisation of Power: The “Objective Parameters” Debate
CPI(M) leader Brinda Karat has specifically criticised the rule-making process for the “objective parameters” governing fund allocation, arguing they were notified without consultation with workers’ organisations or trade unions and that the framework creates “rank discrimination” against workers based on geographic residence — since allocation formulas based on horizontal devolution criteria may not adequately capture localised employment distress in specific districts or blocks.
Implementation Challenges
The introduction of a “blackout period” pausing the scheme during peak agricultural seasons, intended to ensure labour availability for farming, has drawn objections from at least four states who argue this disregards regional agricultural calendar variations and could leave workers without income support during precisely the periods when alternative employment is scarcest in non-agricultural sectors.
Way Forward
The Union government should institute a transparent, consultative mechanism — potentially through the Inter-State Council or NITI Aayog — to finalise the “objective parameters” for fund allocation, incorporating state-specific input on local employment distress indicators rather than relying solely on Finance Commission-style horizontal devolution formulas. Wage revision mechanisms should be indexed to regional cost-of-living indices rather than fixed centrally, ensuring real wage protection for workers across states with vastly different economic conditions, including high-migration states like Bihar.
Relevance for UPSC and SSC Examinations
This topic is essential for UPSC GS Paper II (Governance — welfare schemes, Centre-state relations, fiscal federalism) and GS Paper III (Indian Economy — rural employment, poverty alleviation). For SSC, key terms include: MGNREGA, VB-G RAM G, 16th Finance Commission, horizontal devolution, demand-driven versus supply-driven schemes, and Article 21.