VB-G RAM G marks a shift from rural insurance to managed investment

For nearly two decades, the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) occupied a distinctive place in India’s policy architecture. Its economic significance lay in a simple but consequential institutional idea that rural distress could be translated into a claim on the state. Any rural household willing to undertake manual work could demand 100 days of employment, and the administration carried a time-bound obligation to respond.

 

This rights-based asymmetry, with the citizen as claimant and the state as duty-bearer, made the programme more than a budgetary intervention. It functioned, however imperfectly, as insurance against volatility at the bottom of the labour market. In FY 2024–25, MGNREGS generated 2.9 billion person-days of work, with women constituting 58.15 per cent of total beneficiaries.

 

That architecture has now been abruptly replaced by the Viksit Bharat–Guarantee for Rozgar and Ajeevika Mission (Gramin) (VB-G RAM G) Act, 2025, which revamps rural employment within a restructured institutional framework. The government presented the reform as modernisation: Offering more guaranteed workdays, with emphasis on durable asset creation, tighter monitoring, and closer alignment with development priorities. Yet the redesign indicates a distinct philosophical shift — from a scheme designed around uncertainty to one around control.

 

The Act raises the annual employment entitlement from 100 to 125 days per rural household. In principle, this expands the envelope of income security for households. Yet, the statutory ceiling has rarely been the binding constraint. Average employment provided per household was 50.24 days in 2024-25, and broadly similar in the preceding four years, suggesting that effectiveness is determined more by the institutional conditions that govern how demand is financed, approved, and translated into work, rather than by the headline number of days. Without changes to these underlying mechanisms, raising statutory entitlement days will remain largely symbolic.

 

The Act also seeks to address the problem of uneven quality and durability of assets created. VB-G RAM G proposes to cluster works around water conservation, climate resilience, and core infrastructure, linking them to village development plans. In India, where climate shocks increasingly constrain agricultural output and rural incomes, investments that stabilise water availability or protect against floods and droughts can generate returns beyond the immediate wage impulse.

 

However, a trade-off exists. A demand-driven job guarantee scheme must remain a rapidly deployable instrument. Its strength must lie in absorbing labour quickly, with minimal planning overhead, particularly when households face idiosyncratic shocks. High-quality infrastructure, by contrast, requires technical design, sequencing, and longer gestation periods. Under VB-G RAM G, as the focus shifts towards more complex assets, it risks becoming less elastic during distress. The reform nudges the scheme away from insurance towards investment — potentially raising average returns, but possibly weakening responsiveness when most needed.

 

The most consequential shift, however, is fiscal. Under MGNREGS, financing was demand-driven. When rural distress rose — following droughts, floods, or economic shocks — expenditure increased automatically. This made MGNREGS function, albeit imperfectly, as a macroeconomic stabiliser. Under the new Act, this logic is fundamentally weakened. VB-G RAM G introduces state-wise normative allocations, requiring states to finance excess demand. This implies a non-neutral federal adjustment, reallocating fiscal risk from the government best placed to absorb it (Centre) to those least able (states). In years of stress, poorer states will most likely ration work, delay approvals or tighten administrative filters rather than expand spending. This could create heightened risk of sub-national pro-cyclicality, causing response to move counter to distress. What was designed as a demand-responsive guarantee under MGNREGS risks becoming, in practice, a capped scheme under VB-G RAM G.

 

The allowance for a seasonal 60-day pause in employment also sits uneasily within this framework. It rests on a misplaced assumption that labour markets tighten uniformly during peak sowing and harvesting. In India, rural labour markets are segmented, and labour scarcity often coexists with acute household vulnerability. Empirical literature has shown that for land-poor households, women workers, and those facing health or debt-related shocks, MGNREGS  functioned not as an alternative to farm labour but as a margin of protection when other sources of income failed. VB–G RAM G’s calendar-based suspension of work narrows the conditions under which the programme can respond, weakening its buffer capacity when households experience overlapping shocks.

 

The deeper question is not whether VB-G RAM G will deliver more workdays or better assets, but what kind of state it presumes and produces. The new framework appears more confident of administrative foresight and control. That confidence may be misplaced. In an economy where shocks are becoming more frequent and uneven, resilience depends less on ex ante planning than on the ability to respond ex post, quickly and at scale. A rural employment system that privileges predictability over adaptability may function smoothly in normal times, yet falter when stress tests arrive. The decisive test of VB–G RAM G will be whether the programme continues to act as a stabiliser in bad times or becomes merely more efficient in good ones.

 

The author is Associate Professor, Economics & Public Policy, Indian Institute of Management (IIM) Ranchi. The views are personal.

  amarendu@iimranchi.ac.in