VB G RAM G scheme rules: Performance twist in state fund allocation

States can offset lower formula-based allocations by meeting performance benchmarks under the govt's new funding framework

The Centre has formulated the rules for the normative allocation of funds to states under the Viksit Bharat — Guarantee for Rozgar and Ajeevika Mission (Gramin) Act, or VB G RAM G Act, which replaced the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) nationwide from July 1, 2026. 

The rules state that normative allocations will be based on objective parameters, incl­u­ding the horizontal devolution formula recommended by the 16th Finance Commission. 

However, from the next financial year (FY28), a part of the annual normative allocation to states will also be linked to performance criteria. According to the draft rules, these include timely payment of wages, compliance with social audit requirements, the percentage of works completed during the financial year, and other performance-related indicators that the Centre may specify from time to time. 

Based solely on the 16th Finance Commission’s devolution formula, several states could gain or lose funds under VB G RAM G compared with the funds released under MGNREGA as of March 31, 2026. However, the performance-linked component from FY28 gives states scope to secure higher allocations and offset any reduction under the devolution formula. 

The Centre has said the overall corpus under VB G RAM G will be larger than under MGNREGA, which too will be beneficial to states. As an interim measure, it has proposed releasing ₹95,692 crore to states in FY27 to ensure a smooth transition to the new scheme. Officials said the interim allocation is based on a formula on last year’s devolution to states. The Centre has maintained that VB G RAM G will remain a demand-driven scheme, and that normative funding does not mean that demand needs to be adjusted to the funds allocated. 

The accompanying table compares each state’s share under the 16th Finance Commission’s devolution formula with its share in the actual MGNREGA fund releases dur­ing FY26. It also compares those shares with each state’s allocation under the interim VB G RAM G distribution announced last month.