The Viksit Bharat Guarantee for Rozgar and Ajeevika Mission (Gramin) Act, 2025, India’s successor rural employment legislation to the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), is entering its implementation phase with significant institutional uncertainties. As reported in The Hindu of March 20, 2026, at least 24 States and Union Territories have earmarked funds for the new scheme even though the Union government has not yet notified the formula for determining State-wise normative allocations — a critical parameter defined under Section 4(5) of the Act. The Union Budget for 2026-27 has set aside Rs. 95,652 crore as the Centre’s share, while States must bear 40 percent of total expenditure, creating fiscal pressures particularly for States with large rural populations and limited own-tax revenue.
The VB-GRAM Act represents a significant architectural evolution from MGNREGA. It extends the guarantee from 100 to 125 days of employment per rural household per year, while the 40 percent State cost-sharing requirement is a fundamental departure from MGNREGA’s structure, which was centrally funded for wages. Understanding this transition — its design logic, fiscal implications, governance architecture, and implementation risks — is essential for UPSC aspirants studying India’s social protection system, rural development policy, and cooperative federalism.
💡 Get AI-powered exam prep on your phone!
The absence of the central normative allocation formula nearly a year after the Act’s passage raises important questions about Centre-State fiscal relations, the adequacy of financial devolution for rural States, and the governance capacity of a scheme that seeks to provide employment security to hundreds of millions of rural workers.
Table of Contents
Background and Context: From MGNREGA to VB-GRAM
Five Important Key Points
- The VB-GRAM Act, 2025, extends the guaranteed employment entitlement from 100 days (under MGNREGA) to 125 days per rural household per year, a 25 percent increase in entitlement that significantly expands both the programme’s coverage and its fiscal cost.
- Unlike MGNREGA — which was funded almost entirely by the Centre for wages — VB-GRAM mandates a 40 percent State cost-sharing requirement (with relaxations for northeastern and hilly states and Union Territories), representing a fundamental shift in India’s fiscal federalism architecture for rural employment.
- The Union Budget 2026-27 has allocated Rs. 95,652 crore as the Centre’s share, but the critical formula for distributing this across States under Section 4(5) of the Act — which must be based on “objective parameters” — has not yet been notified, leaving States to use their past MGNREGA expenditure as a baseline for budget provisioning.
- Among the 24 States that have already provisioned funds, even Congress-ruled Himachal Pradesh — which has formally opposed the new Act — has allocated Rs. 143 crore, while Karnataka is identified as the only major outlier, reflecting the practical necessity of providing rural employment regardless of political positions on the legislation.
- The Jal Jeevan Mission (JJM), India’s flagship rural drinking water scheme with an Rs. 8.69 lakh crore outlay, is simultaneously facing implementation challenges related to “source sustainability,” with a Parliamentary Committee noting that JJM’s objectives will remain “unfulfilled” without sustainable water sources — illustrating the broader challenge of converting scheme expenditure into lasting rural development outcomes.
Historical Context: MGNREGA’s Achievements and Limitations
The MGNREGA, enacted in 2005 as a demand-driven right-based employment legislation under the UPA government, represented a transformative moment in India’s social protection architecture. At its peak, it provided employment to over 7 crore rural households annually, serving as both a safety net and a countercyclical fiscal tool during economic downturns. The Act created significant rural infrastructure including ponds, check dams, rural roads, and watershed development works, while simultaneously empowering marginalised communities — particularly Scheduled Castes, Scheduled Tribes, and women — with guaranteed income rights.
However, MGNREGA also suffered from well-documented limitations: wage arrears running into thousands of crores, inadequate asset quality, poor integration with other rural development schemes, and the perception that it primarily addressed distress rather than productive employment. The VB-GRAM Act’s design reflects an attempt to address some of these limitations while expanding coverage — but it introduces new risks through the cost-sharing requirement and the increase in guaranteed days.
Constitutional and Fiscal Federalism Dimensions
The 40 percent State cost-sharing requirement represents a significant departure from the cooperative federalism model under which MGNREGA operated. Under MGNREGA, while States bore some administrative costs, the wage component — which constitutes the largest share of expenditure — was borne by the Centre. The VB-GRAM Act’s shift to a 60:40 Centre-State cost sharing for the full scheme expenditure creates a fiscal burden that many State governments argue is unsustainable given their existing debt levels, committed expenditures, and fiscal consolidation obligations.
This raises important questions about the constitutional framework governing centrally sponsored schemes. The National Development Council and successive Finance Commissions have emphasised that the design of centrally sponsored schemes must be sensitive to the fiscal capacity of States. When the Centre mandates a new entitlement but shifts a significant portion of the fiscal burden to States — particularly without providing the normative allocation formula that States need to plan their own budgets — it creates a governance vacuum that can disrupt programme delivery.
The absence of the Section 4(5) normative allocation formula also creates inequity risks. Economically weaker States with larger rural populations and lower per capita fiscal capacity may receive disproportionately lower Central allocations under objective parameters. This was a persistent complaint under MGNREGA, where States with greater administrative capacity tended to leverage Central funds more effectively than States with weaker implementation infrastructure.
Implementation Architecture and Ground-Level Challenges
States are currently using their past MGNREGA expenditure as the baseline for provisioning their 40 percent share under VB-GRAM, while also accounting for the additional 25 guaranteed workdays. This improvised approach creates significant uncertainty in State fiscal planning and may lead to either over-provisioning (fiscally costly) or under-provisioning (programmatically disruptive). For a State like Rajasthan, which has spent over Rs. 7,597 crore under MGNREGA in the current financial year, the 40 percent share would come to approximately Rs. 3,038 crore. Rajasthan has provisioned Rs. 4,000 crore, maintaining a margin for the expanded guarantee — a prudent but costly approach.
Technology integration is another implementation dimension. The scheme will need robust MIS infrastructure to manage the expanded entitlement, ensure timely wage payments, and track asset creation quality. MGNREGA’s experience with the NREGAsoft system revealed both the potential and the limitations of digital governance in rural employment programmes.
Way Forward
The Union Ministry of Rural Development must immediately notify the normative allocation formula under Section 4(5), ensuring it is based on transparent, objective parameters that account for both programme need (measured by rural poverty rates and employment demand) and State fiscal capacity. The formula must include a special provision for economically weaker States to ensure that the 40 percent cost-sharing requirement does not become a barrier to programme implementation in the States where rural employment need is greatest. The government should also explore convergence mechanisms between VB-GRAM and other rural development programmes — including PM Awas Yojana, PMGSY, and JJM — to ensure that rural employment translates into durable asset creation. Social audits, which were a cornerstone of MGNREGA’s accountability architecture, must be institutionalised under VB-GRAM with statutory backing and independent implementation.
Relevance for UPSC and SSC Examinations
This topic falls under UPSC GS-II (Governance and Social Justice) — specifically under Government Policies and Interventions, Welfare Schemes for Vulnerable Sections, and Federalism. It is also relevant for GS-III (Indian Economy) under Employment, Poverty, and Rural Development.
For SSC examinations, the topic covers government schemes, rural development, MGNREGA, cooperative federalism, and fiscal policy.
Key terms: VB-GRAM Act 2025, MGNREGA, normative allocation formula, cooperative federalism, 40 percent cost-sharing, rural employment guarantee, Section 4(5), Jal Jeevan Mission, social audit, NREGAsoft.