Ji, Ram ji, paisa khatam ho gaya

Days ago, in a column in this newspaper, we analysed the reasons why the Government wished to change the name of Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA). Since there was a huge online controversy over the proposed name, which substituted Pujya Bapu instead of Gandhi, a new one cropped up, Viksit Bharat Guarantee for Rozgar and Ajeevika Mission (Gramin), or G-Ram-G. The bill was passed by the Lok Sabha amid protests from the Opposition over the exclusion of either Mahatma or Bapu. What is crucial is that the new avatar does not signify only a change in name. It implies a restructuring of the welfare scheme, which reduces the financial pressure on the Centre, and forces the states to share the burden. It is an act to manage the fiscal deficit, and enlarge the scope of the original scheme, albeit in the name of efficiency. In effect, the nature of the works, and the way it operates will change over the next few years. It is a form of restructuring.

According to a media report, “India’s fiscal math for 2025-26 is starting to wobble, albeit a little. Substantially slower tax growth than what was budgeted for, along with softer nominal GDP growth (despite higher-than-expected real growth in the first half; fiscal deficit as a percentage of GDP is calculated on nominal growth), has put the fiscal assumptions under some strain.” This implies that the Government will need to trim its expenditure. Two options are public capital spending, and those related to welfare schemes. Changing the name of the rural employment guarantee, along with its new structure will enable lower costs, if not this year, at least from 2026-27 onwards. In fact, the savings will be huge, and in the range of 30-40 per cent lower, or maybe higher. More importantly, G-Ram-G will provide enough flexibility to the policy-makers to manage the expense on this specific welfare scheme. In the recent past, there were allegations that the Centre tried to dilute its expanse.

Here is how three crucial factors will change the scope of the scheme, and help the Centre financially. But first, let us look at the arguments for the proposed changes. During the Lok Sabha debate on the bill, the rural development minister, Shivraj Singh Chouhan, explained the important features of the new architecture. While it retains the legal guarantee of employment for rural households, it hikes the number of workdays in a year. It expands the scope of work under rural employment, and aligns it with the creation of new infrastructure, repairs of old one, management of natural resources, and generation of rural livelihoods. The wage payments will be transparent and corruption-free via direct benefit transfers. Works will be allocated in a time-bound fashion so that they are completed, and not left unfinished or half-completed. This, states the policy-makers, makes the scheme more efficient, effective, useful, and better, both for the states, and the rural poor citizens.

However, the first factor that will change the nature of work, as also the government finances, lies in the scope of work. In the earlier avatar, it was a centrally-sponsored and centrally-driven scheme. The Centre took most decisions. Now, as the range of permissible works is expanded, the respective states will get flexibility to both design and implement the projects. While this may seem to be a better alternative under the country’s federal nature, it can lead to problems. The Centre will still dictate as most of the states are ruled by either the BJP, or its political allies. Hence, the freedom to the states will be only in name. In addition, the expansion of the scope will dilute the works, as each state will take decisions, and include projects that are driven by non-economic factors. Most decisions may be decided due to politics at the state, district, or village levels.

Second, the states will bear a large part of the financial burden. Earlier, the Centre provided the entire funds for the scheme. Now, the states will need to share 40 per cent of the annual budgets, except for the north-eastern and Himalayan states, and union territories without legislature. The Centre will provide 60 per cent of the share. In such a scenario, since most states are strapped for cash, and most chief ministers believe in running their own preferred and preferable schemes for which they can take credit, a few may give short shrift to the central scheme. This will reduce the states’ dependence on the scheme, as they will need to part-finance it. They may find it better, both for credibility, and electoral reasons to focus on the state-specific schemes. Over time, different states will enact their own employment guarantee schemes on which they have better control in terms of finances, selection, and execution.

Finally, as a media report puts it, “While MGNREGS was a demand-driven scheme with the Union Government bound to allocate more money if demand for work was there, under the proposed (new) scheme, the Centre would determine state-wise normative allocation for each financial year. Any expenditure incurred by a state in excess would be borne by the state government.” In essence, the financial levers will be in the hands of the Centre. It will determine how much money to dole out each year. This will give tremendous flexibility to manage expenses and, hence, the fiscal deficits in the future. When states find out that the central money flows are volatile, and change each year, as per the needs of the Centre, or its fancies, several states will feel the need to rely less on the scheme. Hence, as stated earlier, they will devise their schemes, and rely on state-specific ones. Over time, the importance of the central scheme will be diluted.

The Centre will be able to play the state-level games by hiking allocations to some states, and lowering them for the others. Some states may get higher allocations in some years, and not in the others. As witnessed in the earlier avatar too, expenditure on rural guarantee would shoot up in some states during state election years. This is more likely, and easily achievable, in the new scheme. To woo the electorate, the Centre, along with specific states may pump in more money in select years. This will allow the Centre to punish states, which are ruled by the opposition parties. The sharing of the burden with the states can lead to disputes, and delays. There will be more ruptures and fractures in the federal nature, rather than helping the states with higher flexibility. What is evident is that the scheme will change in radical and dramatic ways.