Budget 2026-27 Delivers Major Spending Boost to Rural Economy Through Employment Schemes
The Union Budget for the fiscal year 2026-27 has unveiled a substantial financial injection into India's rural economy, primarily driven by enhanced allocations for employment guarantee programs. This strategic move signals the government's renewed focus on bolstering rural livelihoods and job creation across the nation.
Dual Allocations for Employment Schemes Mark Transition Phase
In a significant development, the budget provides funding for both the existing Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) and its proposed successor, the Viksit Bharat—Guarantee for Rozgar and Ajeevika Mission (Gramin), commonly referred to as the G-RAM G Act. This dual allocation approach indicates a phased transition rather than an abrupt overhaul of rural employment programs.
While MGNREGA has received an allocation of ₹30,000 crore—its lowest in many years—the new G-RAM G scheme has been granted a substantial ₹95,692 crore. Together, these two schemes account for over ₹1.25 trillion in rural employment spending, representing approximately 2.4% of the total budgeted expenditure for 2026-27.
Rural Development Spending Sees Noticeable Revival
After witnessing a steady decline in welfare allocations over the past four years, rural development spending has experienced a marked revival in this budget. Thanks to the increased allocation to rural employment schemes, it has risen to 5.1% of total expenditure, up from 4.3% in the previous fiscal year.
This reversal follows a period during which rural allocations were gradually reduced as pandemic-related pressures eased and employment demand moderated. The current uptick reflects renewed policy attention to rural livelihoods, driven largely by strategic changes to employment guarantee programs.
Agriculture Spending Remains Stable While Subsidies Decline
In contrast to the increased rural development focus, agriculture spending has stabilized around the 3% mark in recent years. For 2026-27, it stands at 3.04%, remaining broadly unchanged from the previous year.
Meanwhile, subsidy spending continues to experience one of the sharpest reductions over recent years, declining from 12.7% in 2022-23 to 7.8% in 2025-26. This reduction has been facilitated by:
- Lower food and fertilizer requirements
- Stable energy prices in global markets
Food and fertilizer subsidies continue to dominate the subsidy bill, comprising more than 96% of total subsidies in 2025-26, while petroleum subsidies remain marginal.
Other Sectoral Allocations and Capital Expenditure Trends
Other key sectors, including education and health, have seen marginal increases in allocations this year. However, their share in the total budgeted expenditure continues to remain relatively low compared to other priorities.
In terms of capital expenditure, the Centre's share has shown a gradual decline—from 2.7% as a percentage of GDP in 2022-23 to 2.5% in 2026-27. However, transfers have compensated for this reduction by rising steadily to 0.6% of GDP.
Capital expenditure through public resources, which represents spending by central public sector enterprises, stands at 1.2% of GDP. This component, which captures investment raised and spent outside the Union Budget, has remained weak over the past several years.
Budget Priorities: Income Support Over Consumption Subsidies
The renewed emphasis on rural development and employment in the 2026-27 budget stands out against a broader backdrop of subsidy compression and modest social sector increases. This approach underscores a budgetary strategy that prioritizes income support and job creation over broad-based consumption subsidies.
The strategic allocation of resources toward rural employment schemes represents a calculated effort to strengthen economic foundations in rural India while maintaining fiscal discipline through controlled subsidy expenditure.
