Chennai: Tamil Nadu is likely to face a steep reduction in fund allocation for the rural employment scheme, VBG RAMG (formerly MGNREGS), according to a draft proposal sent to the state government by the Union rural development ministry.
Drastic Drop in Funding Share
State officials familiar with the proposal estimate that Tamil Nadu's share of national funding, which has accounted for nearly 10% of total allocations by the Union government for the rural employment scheme since 2014, could fall to around 4.1% under the new formula. The revised funding pattern is based on parameters recommended by the 16th Finance Commission.
The move is expected to benefit populous northern states while reducing allocations to several southern states that have traditionally been among the largest beneficiaries of the employment guarantee scheme, officials said.
Declining Trajectory of Allocations
Since 2014, Tamil Nadu has received Rs 87,639 crore under the rural employment programme. Under the proposed allocation mechanism, the state is projected to receive only Rs 3,923 crore out of the total central allocation of Rs 95,692 crore for 2026-27, said a senior official. The state's allocation has already been on a declining trajectory, falling from Rs 12,698 crore in 2023-24 to Rs 10,156 crore in 2024-25 and further to Rs 5,878 crore in 2025-26, he said, citing government data.
Andhra Pradesh, Telangana, and Kerala are also expected to witness significant cuts if the draft rules are implemented in their current form. Officials said the southern states could face a reduction of 30% to 40% in allocations.
Shift from Demand-Driven to Normative Model
The proposed changes stem from the Union government's decision to replace the demand-driven funding architecture of VBG RAMG with a normative allocation model. Under the draft rules, funds would be distributed based on parameters including population as per the 2011 census, per capita GSDP, and demographic performance.
Suggestions and objections to the draft rules have been invited within 30 days of the notification issued on May 22. The Union government has notified that MGNREGS will be replaced by the VB-G RAM G Act from July 1.
State Government's Concerns
State government officials argue that the shift undermines the foundational principle of the employment guarantee programme, which was designed to respond to actual demand for work rather than predetermined state-wise allocations. The change goes against the very foundation of the programme, which is demand-driven. It will have an adverse impact on rural Tamil Nadu in the years to come, said a senior state government official.
Officials point out that states with larger populations and lower per capita incomes are likely to gain under the revised formula, while states that have achieved demographic transition and higher economic growth could lose out. This places Tamil Nadu and other southern states at a disadvantage, another official said. However, state officials remain sceptical about the prospects of major changes to the draft.
