Examine the fiscal federalism implications of the differentiated cost-sharing pattern under VB-G RAM G Scheme.

Q. Examine the fiscal federalism implications of the differentiated cost-sharing pattern under VB-G RAM G Scheme. (15 marks, 250-350 words)

The Viksit Bharat–Guarantee for Rozgar and Aajeevika Mission (Gramin) Act, 2025, in force from 1 July 2026, replaced MGNREGA, 2005 and funds a 125-day employment guarantee through a tiered Centre–State ratio — 60:40 generally, 90:10 for North-Eastern and Himalayan States, and full Central funding for certain UTs [1][2]. This graded design carries both cooperative and contentious federal consequences.

Design of the sharing pattern - 60:40 for States and UTs with legislature; 90:10 for NE and Himalayan States (Uttarakhand, Himachal Pradesh, Jammu & Kashmir); 100% Central for select UTs [2]. - FY 2026-27 Central share of ₹95,692.31 crore — largest ever for a rural employment programme — with total outlay likely exceeding ₹1.51 lakh crore [1][2].

Federal gains - Equity through differentiation: higher Central share for hill and NE States recognises narrow revenue bases and high per-unit construction costs — horizontal equalisation in practice. - Shared ownership: matching contributions make States active partners, aligning the scheme with the wider Centrally Sponsored Scheme framework rather than treating rural employment as a purely Union obligation [2]. - Decentralised planning: Gram Panchayat-prepared Viksit Gram Panchayat Plans deepen third-tier fiscal agency [3].

Federal frictions - Committed liability: a demand-driven statutory right funded 40% by States converts an open-ended entitlement into an unpredictable charge on State budgets, constraining fiscal space in distress years when demand peaks. - Counter-cyclical mismatch: employment demand rises precisely when State revenues fall, weakening the scheme's automatic-stabiliser role. - Conditionality: expenditure norms — four prescribed work categories and a 9% administrative ceiling — narrow State discretion despite their larger financial stake [3]. - Capacity gap: poorer non-Himalayan States face the same 40% burden as fiscally stronger ones.

Overall, the pattern advances cooperative federalism in intent, but genuine partnership requires the burden to track fiscal capacity, not merely geography. Linking State shares to Finance Commission-assessed capacity, guaranteeing timely Central releases, and building a counter-cyclical buffer would let the differentiated model serve both fiscal responsibility and the right to work.

(~320 words)

Sources: 1. Launching of VB-G RAM-G Scheme, PIB (28 July 2026) — effective date, FY 2026-27 Central allocation, MGNREGA replacement 2. Federal Contribution of Funds under VB-G RAM G, PIB — 60:40 and 90:10 ratios, CSS alignment, ₹1.51 lakh crore total outlay 3. VB–G RAM G Act 2025 Backgrounder, PIB — 125-day guarantee, work categories, 9% administrative ceiling, Viksit Gram Panchayat Plans