The Viksit Bharat – Guarantee for Rozgar and Ajeevika Mission (Gramin) Act (VB – G RAM G), which replaces the now repealed Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), promises expanded entitlements, timely wage payments, and other reforms. At the same time, it restructures fiscal responsibility such that states bear a significantly larger burden.
Under MGNREGA, the Centre covered the full cost of wages, 75% of material costs, and up to 6% of the administrative costs. VB – G RAM G replaces this with a uniform cost-sharing ratio rule: general category states will now finance 40% of all components, and hilly and north-eastern states 10%, irrespective of whether the spending is on wages, materials, or administration.
Furthermore, the Act states that the Centre will prescribe an annual “normative allocation” for states based on “objective parameters”. Any expenditure beyond this must be borne entirely by states.
Additional burden on states
Based on FY 25’s MGNREGA wage and material data, here is an estimation of what the fiscal burden on states would have been under the VB – G RAM G Act.
The Union Budget for MGNREGA stood at Rs 86,000 crore in FY 25. Including the additional money spent by states, and pending liabilities (or amounts remaining to be paid), the total expenditure was Rs. 1.19 lakh crore. In the same year, 5.78 crore households — which is 38% of all households registered under MGNREGA — worked, with each household working 50 days on average.
In FY 25, states (excluding West Bengal) spent approximately Rs 10,120 crore on MGNREGA, largely because their contribution was limited to 25% of material costs. Under VB – G RAM G’s revised cost-sharing rules, state spending on wage and material costs alone would have risen to an estimated Rs 41,494 crore. The relative increase would have differed across states, with Kerala, Jharkhand, and Tamil Nadu facing the highest rise, and Haryana, Rajasthan, Telangana, and Uttar Pradesh facing the lowest. (This is excluding the north-eastern and hilly states).
Calculations based on FY25 fiscal trends.
A component-wise breakdown shows that wage costs would have increased for all states, since the Centre covered the entire wage bill under MGNREGA. Under the VB – G RAM G, states would have had to spend a little over Rs 26,000 crore on wages. Among the general category states, this ranges from Rs 3,350 crore in Tamil Nadu to Rs 1 crore in Goa. Kerala, which generated the highest average days of work per household (66 days), would have had to spend Rs 1,243 crore.
Material costs tell a more nuanced story. Overall, states would have had to spend an additional Rs 4,556 crore, 45% higher than under MGNREGA. But the material burden would actually reduce by Rs 610 crore for north-eastern and hilly states, which now would bear 10% instead of 25% of the cost, a reduction of roughly 60%. On the other hand, the material burden would rise to Rs 5,351 crore for other states, an increase of around 60%, with the cost-sharing ratio rising from 25% to 40%.
Impact on state finances
This additional fiscal burden on states comes at a time when their own revenues are growing only moderately, and debt remains high.
For fiscally weaker states that already depend heavily on Union transfers, this represents a reallocation of fiscal risk from the Centre to the states, particularly during periods of economic stress or high rural distress.
While the additional fiscal burden may appear modest as a share of total state expenditures, it masks two important realities. First, much of state spending is already pre-committed to salaries, pensions, and interest payments. In Kerala and Tamil Nadu, for instance, 69% and 61% of their revenue receipts, respectively, are already tied to these committed liabilities in FY 26. For Rajasthan, which contributed 10% of the total households who availed MGNGREA work, the figures stood at 54%.
Second, for poorer states, even small percentage increases translate into difficult trade-offs across other social sectors such as health, education, and nutrition. For example, an additional Rs 1,200–Rs 3,000 crore for a single programme can exceed a state’s annual allocation for other key social interventions or require higher borrowings. Our analysis shows that several states are already relying on debt to bridge revenue–expenditure gaps — with borrowings as a share of total receipts — ranging from 52% in Punjab to 14% in Jharkhand.
Financing the 125 days promise
The fiscal implications become even more serious when viewed against the VB – G RAM G’s promise of expanding employment to 125 days. Under a demand-driven framework, higher rural distress automatically translated into higher fiscal liabilities, something which was evident during the Covid-19 pandemic where expenditure had increased to Rs 1.11 lakh crore in FY 21 and persondays increased from 265 to 369 crore. Unlike MGNREGA, where the Centre absorbed this risk, the VB–G RAM G framework requires states to either finance the expansion themselves or restrict access once the Centre’s normative allocation is exhausted.
Extending the FY 24-25 analysis, if every state generated 125 days for each household that worked that year, the total expenditure for the programme would be nearly double the Rs 1.25 lakh crore, allocated for VB – G RAM G for FY 27.
These are conservative estimates
Applying the VB – G RAM G fiscal model to MGNREGA’s finances for FY 25 is a deliberately conservative exercise. It uses wage rates that are two years old, considers households that were active in FY 25, and is limited to the 50 days of work on average provided to active households.
But even under such conservative stipulations, states would have spent over four times more under the new Bill merely to deliver this limited level of employment. Extending the entitlement to 125 days will either require substantially higher spending by states (beyond the Centre’s normative allocation), or will require the Centre to increase the allocated amount.
This shift arrives amid the XVI Finance Commission’s recently submitted report in which over 22 states urged raising the tax devolution from 41% to at least 50%, citing shrinking fiscal space due to cesses, surcharges, and tighter grant conditionalities. Although further details are awaited, VB‑G RAM G effectively pre‑commits a larger slice of states’ future fiscal space to one centrally designed programme, without clarity on whether Union transfers will expand to offset this added obligation.
For many states, even guaranteeing the existing 100 days of work has been difficult. In that context, the extension to 125 days risks functioning less as a meaningful expansion of entitlements and more as an aspiration. Without a legal requirement for higher Union funding or compensation, VB – G RAM G increases the fiscal responsibility of states, rendering the promise conditional rather than guaranteed. In this sense, the guarantee exists in law, but not necessarily in financing.
Avani Kapur is Director and Laavanya Tamang is Senior Researcher at the Foundation for Responsive Governance.
All data accessed on 21/12/25 from the MGNREGA website. Calculations available with the authors.
The repeal of MGNREGA triggered spirited protests from the Opposition. File 
Calculations based on FY25 fiscal trends.
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