Chennai: The transition from MGNREGA to the new VB G RAM G rural employment scheme could put a significantly higher fiscal burden on state governments while failing to generate more employment, particularly at a time when rural areas face weather-related stress, according to Dhananjay Sinha, CEO and Co-Head, Institutional Equities, Systematix Group.
Under VB G RAM G, state governments are expected to spend around Rs 35,300 crore in FY27, nearly four times the Rs 8,690 crore they spent under MGNREGA last year, a study by Systematix showed. The increase could be particularly sharp in states such as West Bengal, Uttar Pradesh, Punjab and Karnataka, where the allocation could rise by 24 times, 21.3 times, six times and 5.6 times, respectively.
The higher state contribution comes even as rural employment has been weakening. About 622.6 million person-days were generated in the first quarter of FY27, nearly 40% lower than the corresponding period last year. The monthly average over the past 12 months was also about 32% lower than the previous 12-month period. Person-days are now at their lowest level in 12 years, Sinha said.
He attributed the decline primarily to structural factors rather than just the transition to the new scheme. Rural employment allocations have been declining amid fiscal consolidation, while MGNREGA wages are estimated to be 20-25% below prevailing rural wages, reducing the incentive for workers to opt for the programme.
Sinha said VB G RAM G may not necessarily deliver the promised increase in employment despite raising the guarantee from 100 to 125 days. Unlike MGNREGA, which provided employment on demand, the new scheme is more budget-driven and therefore constrained by the allocation made at the top.
Under MGNREGA, workers received an average of only 43 days of employment annually, while just around 4% managed to complete 100 days. Additional digital compliance requirements under VB G RAM G, including biometric attendance, e-KYC and the use of apps, could create further implementation hurdles and potentially reduce actual employment generated.
The new framework also represents a shift towards greater centralisation, with plans aligned to the Viksit Gram Panchayat framework and the Viksit Bharat National Rural Infrastructure Stack. While the Centre will have a greater role in determining plans and monitoring implementation, states will shoulder a larger share of the financial burden.
The concern becomes more significant in an El Nino year. A weaker monsoon and lower agricultural production could depress rural incomes and wages, while the new scheme may not have sufficient flexibility to respond to a sudden increase in demand for employment.
With VB G RAM G having only recently been rolled out, Sinha expects initial implementation challenges and does not expect the scheme to provide a major immediate boost to rural consumption.
He said the government may need to reconsider the broader rural allocation this year and potentially provide more funds than currently budgeted if weather-related stress and weak rural incomes intensify.
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