Big, poor States to get higher funds under govt.’s new rural jobs scheme

Editorial Lens

"The transition from MGNREGA to the Viksit Bharat-Guarantee for Rozgar and Ajeevika Mission (VB-G RAM G) represents a fundamental paradigm shift in India's rural social security architecture. It moves from a demand-driven, open-ended welfare model to a normative, supply-constrained framework aligned with the 16th Finance Commission's horizontal devolution logic. By prioritizing 'GSDP distance' (42.5% weightage), the scheme seeks to institutionalize fiscal equity, channeling resources toward lagging states. Furthermore, the introduction of a 60:40 cost-sharing mechanism and performance-linked incentives aims to enhance state-level accountability and asset quality, addressing chronic issues of corruption and delayed project completion. However, this structural shift introduces significant socio-economic risks. The move from a legal guarantee of work to a fixed normative allocation potentially dilutes the 'Right to Work,' making the safety net vulnerable during sudden economic shocks or droughts. Additionally, while the scheme promotes fiscal prudence for the Centre, the requirement for states to co-fund wages may exacerbate the fiscal distress of the very states—such as Bihar or Uttar Pradesh—that the scheme intends to support, potentially creating a paradox of implementation."

Context and Overview

The Union Government has notified the draft rules for the Viksit Bharat-Guarantee for Rozgar and Ajeevika Mission VB-G RAM G, which will replace the Mahatma Gandhi National Rural Employment Guarantee Act MGNREGA starting July 1.

The fundamental shift lies in moving away from a purely demand-driven model to a normative, criteria-based fiscal allocation model linked with the 16th Finance Commission horizontal devolution formula.

MGNREGA vs VB-G RAM G: Key Structural Shifts

MGNREGA Old Scheme

• Approach: Demand-based. Budget expanded dynamically based on the actual work demanded on the ground.
• Wage Funding: 100 percent funded by the Centre for the wage component.
• Allocation Criteria: Based on local rural employment demand and previous utilization.
• Governance: Managed via standard state or district rural development agencies.

VB-G RAM G New Scheme

• Approach: Normative-based. Central allocations are predetermined using fixed objective parameters.
• Wage Funding: Shared Responsibility. Co-funded by Centre and States in a 60 to 40 ratio for most States.
• Allocation Criteria: Tied to the 16th Finance Commission horizontal devolution formula and performance metrics.
• Governance: Guided by a National Level Steering Committee and Central Gramin Rozgar Guarantee Council.

The New Allocation Formula 16th Finance Commission Alignment

Instead of allocating funds purely based on demand, the Centre will use the indicators designated for inter-state tax devolution. This benefits larger and poorer states.

Key Weightage Parameters

• GSDP Distance 42.5 percent weightage: Measures how far a State per capita Gross State Domestic Product falls short of the wealthiest State. This ensures that poorer states get the largest share of the funds.
• Population 17.5 percent weightage: Based on the 2011 Census, ensuring that highly populated states receive higher absolute funding.
• Other Metrics 10 percent weightage each: Includes demographic performance, forest cover, area, and contribution to GSDP.

Introduction of Performance Criteria

From the second year of the Act implementation, a portion of the funding will become performance-linked. States will be incentivized based on:

1. Timely payment of wages, which addresses a chronic bottleneck of the old MGNREGA.
2. Compliance with social audit requirements to strengthen accountability.
3. Percentage of completion of works to reduce asset creation delays.
4. Other performance-related indicators notified by the Centre.

Analytical Insights for UPSC Mains