From MGNREGA To VB-GRAM-G

Policy Update

Katyayani Sinha

Background

For twenty-one years, the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), 2005 gave every rural household a legal entitlement to 100 days of unskilled work a year. Its funding was generous to states: the Centre covered full unskilled wages and 75% of material costs, leaving states only a quarter of materials, plus administration and unemployment allowance.

That architecture has now been dismantled. On May 11, 2026, the Ministry of Rural Development notified the Viksit Bharat – Guarantee for Rozgar and Ajeevika Mission (Gramin) Act, 2025 — VB-GRAM-G, effective July 1, 2026, repealing MGNREGA. The Bill was introduced in the Lok Sabha on December 16, 2025, passed amid opposition protests, and received Presidential assent shortly after. Existing job cards stay valid until states issue new Gramin Rozgar Guarantee Cards, a transition the government calls “smooth and worker-centric.”

On paper, VB-GRAM-G looks like an expansion: the guarantee rises from 100 to 125 days per household per year, and the Centre has allocated ₹95,692.31 crore for FY 2026-27, the largest-ever budget for a rural employment programme, with combined Centre-state outlay expected to cross ₹1.5 lakh crore. But the government’s framing as a modernising step under “Viksit Bharat@2047” sits uneasily against a funding redesign shifting real exposure onto states, and an allocation mechanism that no longer responds automatically to actual household demand.

Functioning

VB-GRAM-G restructures rural employment guarantee in three important ways.

Funding pattern. MGNREGA’s Centre-heavy model is replaced by a Centrally Sponsored Scheme structure, with wages, materials, and administration split 60:40 between Centre and states. North-eastern and Himalayan states, plus Union Territories, retain a more favourable 90:10 split (or full Central funding for UTs without a legislature). States still bear the unemployment allowance and wage-payment delay compensation, as before.

Allocation mechanism. Perhaps the most consequential change is procedural: MGNREGA allocated central funds based on labour budgets submitted, making it demand-driven in principle. VB-GRAM-G instead sets a state-wise “normative allocation” each year, using the Sixteenth Finance Commission’s horizontal devolution formula; any state spending beyond that ceiling becomes its own liability.

This is where the law’s framing and its critics’ reading diverge, and the divergence matters more than either side’s headline claim. The government maintains the 125-day entitlement remains a legal guarantee that still responds to demand, the normative allocation, in this telling, is a planning tool, not a hard ceiling, and states can claim extra funds through the usual supplementary-grant process.

Critics, including the scheme’s original architects, read it differently: tying central funding’s starting point to a Finance-Commission-style formula rather than actual demand, they argue, turns an open-ended entitlement into something functioning like a capped grant regardless of its label. Which reading holds depends on how liberally the Centre interprets “excess expenditure” claims once data arrives; on paper, both readings fit the Act’s text.

Work design. The Act permits states to notify up to 60 days of “seasonal pause” during peak sowing and harvesting, suspending works so the programme doesn’t compete with private farmers for labour. It also raises the administrative ceiling from 6% to 9%, adds technology-driven monitoring, and shifts focus toward productivity-linked, infrastructure works rather than purely unskilled labour.

Taken together, functioning shifts from a Centre-funded, state-implemented guarantee toward a co-financed model where the Centre sets the fiscal envelope and states operate, on critics’ reading, absorbing the overflow, within it. Whether that envelope stays flexible enough to preserve the guarantee’s demand-driven character, as the government insists, or hardens into a cap, as critics fear, is the question the rest of this article returns to.

Performance

To judge whether this redesign is justified, it helps to look at how MGNREGA performed, a record that is genuinely mixed, not uniformly poor. On the implementation side, the CAG’s Performance Audit of MGNREGS (Report No. 6 of 2013), covering 3,848 gram panchayats across 28 states and four UTs, found per-household employment declined from 54 days in 2009-10 to 43 in 2011-12, alongside fewer works completed on time.

It also found job cards undelivered to over 12,000 households across six states, and roughly ₹37 crore in wage non-payment unnoticed across 14 states. Most tellingly, Bihar, Maharashtra and Uttar Pradesh, home to 46% of India’s rural poor, drew down only about 20% of central funds, showing a weak link between need and spending. A later Common Review Mission (2017) found on-time wage payments still fluctuating between 27% and 50% across four fiscal years, with panchayats reporting inadequate technical capacity, a gap VB-GRAM-G’s expanded administrative budget and technology mandate aim to address. The government has cited this history of “corruption and leakages” as its rationale for a more accountable successor.

At the same time, MGNREGA’s demand-driven design was also its clearest strength, and COVID-19 supplied the clearest evidence. In FY 2020-21 alone, the scheme added a record 17.51 million new job cards and delivered work to roughly 110 million people, the highest since 2006, because the law obliged the Centre to keep funding work as long as households demanded it. That elasticity had real limits even under MGNREGA, surveys found only 15-53% of enrolled households actually received the work sought, and just 7 million of the ~75 million employed got the full 100 days, but the funding structure never constrained how much work could be sanctioned.

The key question is whether VB-GRAM-G’s formula-based normative allocation can replicate that elasticity, or will instead behave like a fixed annual budget that runs out before the guarantee is fulfilled, a question firm answers to will require at least a full year of implementation data.

Impact

VB-GRAM-G’s consequences are best understood as three distinct impacts, state finances, worker access, and local implementation capacity, often blurred together but pulling in different directions.

Impact on state finances. A 60:40 split means a state relying heavily on the scheme, once paying roughly a quarter of material costs, must now fund 40% of total costs including wages, a larger, more volatile liability where own-tax revenue is limited and rural distress higher. This is compounded by the “excess expenditure” clause: the Centre fixes a normative allocation using the Finance Commission’s devolution formula, built for general revenue-sharing rather than a demand-responsive guarantee, so any mismatch with actual demand falls on the state’s own budget (subject to the supplementary-grant process noted above). States with high dependency and weaker fiscal headroom are more exposed than stronger states that can absorb overruns.

Impact on worker access. For rural workers, the picture is more ambiguous than “better” or “worse,” and is separate from state finances above, a state could be fiscally comfortable while its workers still lose access, or vice versa. The nominal entitlement grows (125 versus 100 days), but two features could erode that gain.

First, the seasonal pause can suspend up to 60 days of work exactly when agricultural wage labour is otherwise available, narrowing the window to claim the entitlement. Second, if a state’s allocation runs out before demand is met, workers could face de facto rationing regardless of legal entitlement. Rahul Gandhi has warned that funding shortfalls or seasonal gaps could leave workers without paid work for long stretches, a claim the government disputes. Which side proves right will vary by state, depending on how each state’s allocation compares to actual demand.

Impact on local implementation. A third, more operational impact concerns the panchayats and district administrations delivering the scheme. The administrative ceiling raised from 6% to 9% in principle gives more room to hire staff and strengthen monitoring, a direct response to the CAG-documented gaps in the Performance section.

But the same provision also mandates technology-driven monitoring, raising the bar for “adequate implementation”: panchayats lacking digital infrastructure or trained staff may struggle to comply even with a larger budget, particularly in the high-dependency, low-capacity states already carrying the heaviest fiscal exposure. In other words, states least equipped to absorb the new funding burden may also be least equipped to meet the new standards, a compounding risk rather than an independent one.

Emerging Issues

Several fault lines are visible even before full implementation.

Centre-state fiscal federalism. Critics, including former MGNREGA architects Nikhil Dey and Aruna Roy, argue the shift undermines a fully Centrally-funded work guarantee, transferring financial risk and accountability for shortfalls onto states, tied to India’s broader debate over cooperative versus centralised fiscal federalism.

Erosion of the “guarantee.” MGNREGA’s legal strength came from being justiciable, a household could claim unemployment allowance if work wasn’t provided within 15 days. Whether capped allocations can sustain that enforceability is contested; critics call the shift a move from a rights-based entitlement to an outcome-linked “mission,” with real legal consequences.

Political contestation. The Bill’s passage saw opposition amendments seeking to restore MGNREGA’s name and full central wage funding, and criticism from Congress and CPI, who call the new pattern a weakening of workers’ bargaining power and panchayat financial autonomy.

Implementation uncertainty. With rules still being notified near the July 1 deadline, questions remain about administrative readiness, ongoing works during transition, and how seasonal-pause windows will be defined across India’s varied agro-climatic zones.

Way Forward

For VB-GRAM-G to deliver on its stated goals without hollowing out the guarantee it replaces, a few things will matter most: Transparent, adequate normative allocations: The Centre should publish the allocation methodology and build in a mid-year revision tied to real-time labour demand, rather than a formula fixed at year’s start.

Protecting the “guarantee” character: Enforcing provisions like the unemployment allowance is essential for the scheme to remain a legal entitlement rather than a capped grant.

State fiscal support: Poorer, high-dependency states face the steepest liability; targeted transfers beyond the current NE/Himalayan carve-out may be needed to prevent a de facto benefit cut where the scheme is needed most.

Independent monitoring of seasonal pauses: Third-party or CAG-style audits of when states invoke pauses would help distinguish genuine agricultural-labour protection from indirect rationing.

A full-year performance review: Given how consequential the shift to allocation-driven funding is, an independent assessment after FY 2026-27 should be built into the law’s design, not left to political debate.

Ultimately, VB-GRAM-G’s success will be decided less by its promise of 125 days of work, and more by whether its funding architecture can flex the way rural distress actually does.

Selected References and Important Links

Vajiram & Ravi, “VB-G RAM G to Replace MGNREGS: Key Changes in Rural Employment Scheme”: https://vajiramandravi.com/current-affairs/vb-g-ram-g-mgnregs-rural-employment-scheme-changes/

PRS Legislative Research, Bill Summary — Viksit Bharat GRamG Bill, 2025 (Dec 16, 2025): https://prsindia.org/files/bills_acts/bills_parliament/2025/Summary-Viksit_Bharat_GRamG_Bill_2025.pdf

PRS Legislative Research, Bill Track page: https://prsindia.org/billtrack/the-viksit-bharat-guarantee-for-rozgar-and-ajeevika-mission-gramin-bill-2025

SCC Online Blog, “VB-GRAM-G Act Implemented from 1 July 2026” (May 12, 2026): https://www.scconline.com/blog/post/2026/05/12/vbgramg-act-implemented-from-1-july-2026/

Business Standard, “VB-G RAM G replacing MGNREGA to come into force across India from July 1” (May 11, 2026): https://www.business-standard.com/india-news/vb-g-ram-g-replacing-mgnrega-to-come-into-force-across-india-from-july-1-126051100540_1.html

Zee Business, “MGNREGA to be replaced from July 1: What VB–G RAM G Bill proposes” (May 11, 2026): https://www.zeebiz.com/economy-infra/news-mgnrega-to-be-replaced-from-july-1-what-vb-g-ram-g-bill-proposes-395311

Deccan Herald, “VB-G RAM-G Bill gets President Murmu’s assent”: https://www.deccanherald.com/amp/story/india%2Fg-ram-g-bill-gets-presidents-assent-3838629

Deccan Herald, “Opposition MPs submit amendments to VB-G RAM G Bill 2025”: https://www.deccanherald.com/india/opposition-mps-submit-amendments-to-vb-g-ram-g-bill-2025-seeking-to-replace-draft-laws-name-to-mgnrega-3834953

Daily Pioneer, “Centre Replaces MGNREGA with VB-G RAM G Act from July 1, Expands Rural Job Guarantee”: https://dailypioneer.com/news/slug-lite/vb-g-ram-g-act-to-come-into-force-from-july-1-govt?year=2026

Comptroller and Auditor General of India, Performance Audit of MGNREGS, Report No. 6 of 2013: https://cag.gov.in/en/audit-report/details/118182

Accountability Initiative, analysis of the CAG Performance Audit of MGNREGA: https://accountabilityindia.in/blog/highlights-from-the-cag-performance-audit-of-mgnrega/

ThePrint, “MGNREGA audit: Low wage rate & delayed payments among the biggest problems” (Sept 21, 2017), on the Common Review Mission findings: https://theprint.in/india/governance/mgnrega-audit-low-wage-delayed-payments/10561/

The Wire, “High Demand for MGNREGA Is a Ringing Fire Alarm” (Sept 17, 2021), on COVID-era job-card and person-day data: https://m.thewire.in/article/labour/high-demand-for-mgnrega-is-a-ringing-fire-alarm

Business Standard, “Demand for MGNREGS exceeds govt estimates” (July 2020), on person-days logged vs. projected during the first COVID wave

MicroSave Consulting, “Did MGNREGA mitigate the loss in income and unemployment caused by the COVID-19 pandemic?” (2021): https://www.microsave.net/2021/05/28/did-mgnrega-mitigate-the-loss-in-income-and-unemployment-caused-by-the-covid-19-pandemic/

The Legal Hubb, “The Viksit Bharat Guarantee for Rozgar and Ajeevika Mission (Gramin) Bill, 2025: Reimagining Rural India’s Employment Landscape”: https://thelegalhubb.com/the-viksit-bharat-guarantee-for-rozgar-and-ajeevika-mission-gramin-bill-2025-reimagining-rural-indias-employment-landscape/

Nikhil Dey and Aruna Roy, “VB-G RAM G Bill annihilates MGNREGA and undermines rural India’s right to work,” Indian Express (Dec 15, 2025)

News on Air, statements by Union Rural Development Minister Shivraj Singh Chouhan and Union Minister Manohar Lal on VB-G RAM G: https://www.newsonair.gov.in/vb-gramg-2025-fully-secures-employment-of-mgnrega-workers-shivraj-singh-chouhan

About the Contributor

Katyayani Sinha is a research and editorial intern at IMPRI. She is a second-year MA International Relations student. Her focus is foreign Policy and strategic affairs, and for the past few months She has been involved in political research at various organisations.