Reforming Employment Guarantee Act

Summary of VB - G RAM G Act and Its Implications

Legislative Framework:

• The Viksit Bharat – Guarantee for Rozgar and Ajeevika Mission (Gramin) Act (VB – G RAM G) replaces the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA).
• Introduces expanded entitlements, timely wage payments, and revisions in fiscal responsibilities for states.

Fiscal Responsibility Changes:

• Previously, the Centre covered 100% of wage costs, 75% of material costs, and up to 6% of administrative costs under MGNREGA.
• Under VB – G RAM G:
  • General category states will fund 40% of all costs (wages, materials, administration).
  • Hilly and north-eastern states will contribute 10%.
• Annual “normative allocation” for states will be prescribed by the Centre based on “objective parameters”. Exceeding costs must be borne by states.

Fiscal Burden Analysis (FY 2025):

• Total Union Budget for MGNREGA: Rs 86,000 crore.
• Total estimated expenditure including states' contributions: Rs 1.19 lakh crore.
  • Approximately 38% of households (5.78 crore) engaged, averaging 50 days of work per household.
• Projected state spending under VB – G RAM G:
  • Estimated at Rs 41,494 crore for wages and materials, a significant increase from previous arrangements.

Impact on States:

• States like Kerala and Tamil Nadu will face the highest increases in fiscal burden, while Haryana and Uttar Pradesh will see lower increases.
• Increased wage responsibilities would require states to allocate over Rs 26,000 crore for wage costs alone.
• Overall, material costs for general states would increase by 60%, translating to an additional Rs 5,351 crore spending requirement.

Economic Indicators:

• States’ revenue growth is moderate, with existing high debt levels complicating additional fiscal responsibilities.
• Fiscally weaker states reliant on Union transfers may experience economic stress due to shifted fiscal risk.

Social Sector Implications:

• Increased fiscal obligations could hinder funding for other critical social sectors like health and education, especially in poorer states where even small increases can lead to significant trade-offs.

Employment Guarantee Terms:

• The VB – G RAM G envisions expanded employment to 125 days per household.
• Without adequate Centre funding assurances, states may struggle to fulfill employment guarantees, rendering them conditional rather than guaranteed.

Political and Financial Context:

• The Centre’s previous absorption of fiscal liabilities under MGNREGA (especially during crises like COVID-19) has shifted to state responsibilities under the new framework.
• XVI Finance Commission recommendations for tax devolution increases (from 41% to at least 50%) reflect economic pressures states face.

Conclusion:

• The shift to VB – G RAM G represents a significant restructuring of employment guarantee programs, with profound implications for state fiscal health and social service funding.
• As states grapple with new fiscal obligations and limited financial capacity, the practical realization of guaranteed employment and welfare provisions remains uncertain.