MGNREGA gone, Centre is puppet master of new scheme with no guarantees

When the government framed the new Viksit Bharat – Guarantee for Rozgar and Ajeevika Mission (Gramin), it seems to have borrowed the strategy that Greek philosopher Plato described in Republic of the captivating shadow play by puppet masters that conceals the real nature of reality.

Going by the sly acronym VB-G RAM G, the act hides the puppet strings that have effectively ripped a vital economic lifeline for the poorest Indians. It was hastily bulldozed through both houses of Parliament at the end of December.

For the last two decades, the Mahatma Gandhi National Rural Employment Guarantee Act, which provided 100 days of guaranteed work a year to any household that requested it, has kept rural India afloat.

In 2025, the law provided employment to 79 million workers – nearly one of every three rural homes. It was the largest anti-poverty public works programme in the world.

VB-G RAMG has not only repealed MGNREGA in toto, but also squashed the legal guarantee to demand work.

MGNREGA was previously a centrally-sponsored scheme, with nearly 90% of the expenditure funded by the Centre, while the states were responsible for implementation.

Now, the central government, as the federal puppet master, while claiming that VB-GRAM G has increased the guarantee to 125 days of work per household, has in reality reduced its financial stake in the scheme.

Puppets of the gods

The new law violates the spirit of Indian fiscal federalism. The fine-print of the financial memorandum at the tail end of VB-GRAM G specifies that of the expected annual expenditure of Rs 1,51,282 crore (presumably for 2026-’27), the Centre will foot the bill for only 60%. The states will effectively have to shell out at least Rs 55,590 crore.

By contrast, in 2024-’25, states spent only Rs 10,120 crore on MGNREGA, mainly on material costs. Hundred percent of the wages of unskilled beneficiaries were funded by the centre.

In addition, VB-G RAM G offers sweeping powers to the central government. Now, the central government sitting in Delhi will not only decide how many workers can be employed by every state but also where they can work.

MGNREGA, on the other hand, was a universal guarantee that all rural families could claim across India, with no restrictions.

The new law will now be applicable only “in such rural areas in the State as may be notified by the Central Government”.

This effectively annihilates the universal guarantee to rural households across India to demand work. There is also no guarantee that the central government will actually pay its 60% share of the expenditure equally to all large states that run the programme.

It is now entirely at the Centre’s discretion to determine the “state-wise normative allocation for each financial year” based on supposed “objective parameters.” This could easily be used by the party in power in New Delhi to favour states that it governs, especially before elections.

Second, the Centre has consolidated its grip on the programme with a clause that all expansions beyond the earmarked budget will have to be borne “by the State Government in such manner and procedure as may be prescribed by the Central Government”.

Third, if employment is not provided to households that ask for it, the law places the financial burden of “unemployment allowance and delay compensation” entirely on the states.

Fourth, though the new law has on paper increased the employment guarantee from 100 days to 125 days, the promise itself is empty.

As experience has shown, rural households on average typically received only 50 days of work each year – half the guaranteed amount. In 2024-’25, for instance, only 7% of MGNREGA households received the full 100 days.

If the guarantee were to genuinely increase to 125 days for all households, the financial commitments from both centre and state would also have to be increased substantially.

­

Lastly, since the introduction in late 2025 of the Single Nodal Agency - System for Prompt Release of Assistance for Development to receive real-time matching grants from the centre, states have to deposit their share of spending on centrally sponsored schemes in designated bank accounts in advance upfront.

But the ability of states to fulfil this increased burden is constrained, given that most are cash-strapped and have limited fiscal autonomy.

Fiscal autonomy

Between 2014 and 2025, the debt of all state governments has tripled from Rs 25 lakh crore to Rs 94 lakh crore.

Most states have already breached the debt-gross state domestic product ratio of 20% recommended by the 2017 Fiscal Responsibility and Budget Management Committee.

“Double-engine” Bharatiya Janata Party-ruled states have a weighted average debt of 27% of their gross domestic state product. The average is weighted by the size of each state’s gross domestic product to reflect the size of its economy.

States ruled by National Democratic Alliance governments in which the Bharatiya Janata Party is a partner, have a debilitating load of 35%. States ruled by Opposition parties that were members of the INDIA alliance, meanwhile, have a load of 32%.

Constitutionally, the states also have limited powers to raise taxes and determine expenditure. In 2025-’26, PRS Legislative Research estimates that half of state revenue receipts were spent on committed expenditure such as salaries, pensions and interest payments – which often crowd out other development expenditures.

Opposition-ruled states such as Himachal Pradesh (83%), Kerala (69%), Punjab (74%) and Tamil Nadu (62%) spent the most on these committed items.

Burden on states

Some states have attempted to create their own work-guarantee schemes. In protest against VB-GRAM G, the West Bengal government renamed its Karmashree scheme as Mahatmashree and doubled the guarantee from 50 days of employment to 100 days.

But the work guaranteed in West Bengal has largely been only on paper. For four years, a financial tussle between the central and state government over alleged corruption had led to MGNREGA work being stopped.

It was not restarted despite both the Calcutta High Court and the Supreme Court ordering the central and cash-strapped state government to do so.

With the change in name to VB-GRAM G, firmly associating the law with the ruling party’s Hindutva ideology, Opposition-ruled states are unlikely to be eager to fund the new employment programme.

To establish their direct connection to voters, many have already committed outflows as cash transfers to women, from Tamil Nadu’s Rs 1,000 per month Magalir Urumai Thogai to Jharkhand’s Rs 2,500 CM Maiyan Samman Yojana.

In the last decade, the relationship between the central government and the states has become increasingly fractious. The VB-GRAM G sets a new precedent by burdening states with substantial financial responsibilities against the spirit of fiscal federalism.

The Indian Constitution clearly spells out in Article 258(3) that states have to be financially compensated for additional responsibilities imposed, based on mutual agreement or arbitration. As a consequence, experts say, the new law could be interpreted as unconstitutional.

Nationwide protests

Many opposition-ruled states have already vociferously objected to the new law and may even challenge it in the courts. Punjab and Telangana have already passed resolutions in their assemblies for the restoration of the entire architecture of MGNREGA.

Workers, labour unions, civil society collectives, political parties, too, in their thousands have taken to the streets in state capitals, districts, blocks and villages to demand the restoration of MGNREGA.

As one worker at an online consultation evocatively summarised it, “Yeh pet pe laath, NREGA ko khatam nahi, majdooron ko khatam kar dega.” This kick in the belly will not kill NREGA, it will kill workers.

Swati Narayan teaches at the National Law School of India University, Bengaluru, and is the author of Unequal.