States wary of fund-sharing as Centre eyes structural reset of MGNREGA

Several states have flagged concerns over the Centre’s proposed overhaul of the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS), particularly the move towards fund-sharing and a shift from a demand-driven model to a normative, budget-capped allocation system. 

Sources told Business Today Television that state finance ministers are considering writing to the Centre, expressing reservations about the financial and operational implications of the proposed changes.

At the heart of the pushback is the Centre’s plan to replace the existing MGNREGA framework with a restructured rural jobs programme, Viksit Bharat Guarantee for Rozgar and Ajeevika Mission (Gramin) that alters the funding architecture. Under the proposal, states will be required to share the cost of the scheme, with a 60:40 Centre-state split for most states and Union Territories, a 90:10 ratio for northeastern and Himalayan states and UTs with legislatures, and 100% central funding only for UTs without legislatures.

States argue that while greater fiscal responsibility is being pitched as a reform, the new structure would place an additional burden on already stretched state finances. Unlike the current MGNREGA system where funding is demand-driven and open-ended based on labour budgets submitted by states, the revamped scheme would involve state-wise normative allocations determined annually by the Centre, effectively capping expenditure.

Sources said states are also uneasy about losing flexibility in responding to local employment demand, especially during distress periods such as droughts or floods. “Moving from demand-based funding to a normative system risks excluding genuine job demand on the ground,” a senior state official said, adding that finance ministers are evaluating the impact before formally communicating their concerns to the Union government.

The Centre, however, maintains that the revamp is necessary to curb misuse and leakages. Government sources have pointed out that some states were allegedly diverting MGNREGA funds towards state infrastructure projects, thereby conserving their own budgets while exhausting central funds. 

Officials say the proposed changes, including digital attendance through the National Mobile Monitoring System and Aadhaar-linked payments, are part of a broader effort to plug leakages and ensure funds reach intended beneficiaries. Still, with states wary of sharing costs and ceding control over allocations, the Centre may face resistance as it moves ahead with plans to reshape one of the country’s largest social security programmes.

For FY 2025–26, total expenditure under MGNREGA stands at Rs 62,170.07 crore so far, while the Centre has released Rs 68,806.96 crore out of the full budgeted allocation of Rs 86,000 crore.