States will get VB-G RAM G funding based on the 16th Finance Commission formula, ‘Performance Criteria’

Bigger, poorer states are poised to get more funding under the Centre’s new rural jobs scheme, with the draft rules for the Viksit Bharat–Garantee for Rozgar and Ajeevika Mission (VB-G RAM G) proposing to use the 16th Finance Commission’s horizontal decentralization formula to determine central allocations under the scheme. Starting next year, an unknown percentage of funding will also be allocated based on how well states have implemented the system.

These are among the proposals contained in a number of draft rules announced over the past two days for the VB-G RAM G Act, which is set to come into effect from July 1 and replace the 20-year-old Mahatma Gandhi National Rural Employment Guarantee Act. Apart from the allocation formula, the rules deal with provisions for grievance redressal mechanisms, institutional and administrative frameworks and transitional provisions governing the transition from the UPA-era MGNREGA Act.

Also read | Change for the worse: On MGNREGA to VB-G RAM G

Objections and suggestions to the draft rules from interested parties, experts and the general public are open until June 21.

Allocation formula

One of the key features of the VB-G RAM G legislation passed by Parliament last December was that it moves away from the demand-based approach of MGNREGA, which was supposed to stretch the scheme’s budget to match any level of demand on the ground. Further, while the Center met 100% of the wage costs under MGNREGA, the VB-G RAM G shared this expenditure between the Center and the States in the ratio of 60:40 for most of the States.

In the draft rules explaining the “objective parameters” for normative allocation to states under the new law, the Center said the allocation for each fiscal year will be based on “objective parameters used for horizontal devolution among states as recommended by the Sixteenth Finance Commission”.

This conversion formula is based on various weighted metrics, including 2011 census population, demographic performance, forest, area, distance, gross domestic product per capita, and contribution to gross domestic product. The maximum weight is given by the GSDP distance (42.5%), which measures how far a state’s per capita GSDP lags behind the richest states, essentially favoring poorer states. The next highest weight is given to population (17.5%), which benefits larger states, while all other metrics have 10% weight in this formula.

Performance matters

However, the draft rules added that part of the normative allocation from the second year of the law’s implementation will be based on “performance criteria”.

This includes “timely payment of wages”, “compliance with social audit requirements”, “percentage of work completion” and “any other performance-related indicators” that the center chooses to report.

The draft rules do not mention how much of the prescriptive allocation will be based on these performance indicators.

Transition from MGNREGA

The draft rules provide for continuation of ongoing works under MGNREGA, settlement of outstanding liabilities, transfer of records and continuation of workers’ rights during the transition period.

It also notes that existing e-KYC verified MGNREGA job cards will remain temporarily valid until new Gramin Rozgar Guarantee Cards are issued, while new jobs may also be opened if ongoing projects are insufficient to meet the demand for manpower.

Administrative mechanisms

The draft rules also propose conditions for the creation of a National Steering Committee to “recommend decisions regarding prescriptive allocations to the States,” among other functions related to setting standards, guidelines, and monitoring mechanisms. This 16-member committee, headed by the Union Rural Affairs Secretary, will also include at least five representatives of state governments nominated by the Centre. Representatives of other Union Ministries and NITI Aayog will also be part of this committee.

The draft rules deal with provisions relating to the Central Gramin Rozgar Guarantee Board, to be headed by the Union Minister for Rural Development, and lay down procedures relating to administrative expenditure, grievance redressal, payment of wages and unemployment benefits and expenditure incurred in excess of statutory allocations, including for Union territories without legislatures.

While the Steering Committee at the national level is to provide strategic guidance on implementation, the GRG Central Council is to advise the Center on the overall implementation of the new law, with the ministry saying the two bodies aim to strengthen policy coordination, institutional oversight and participatory governance.

The draft rules, announced through eight separate gazette notices, were published to facilitate wider consultation with States, institutions, experts, worker groups, civil society organizations and the public over the next month.

Published – 23 May 2026 14:29 IST