Fund sharing between the Centre and states under the new VB-G RAM G framework will be based on a normative assessment, with states likely to gain around ₹17,000 crore compared to the average allocation over the last seven years, according to a research report by State Bank of India.
Using a simulated scenario of normative assessment of only the Centre’s share, with seven attributes spread across the twin pillars of equity and efficiency, the report estimates that states stand to gain about ₹17,000 crore over the average allocation of the past seven years.
“We estimate that states gain around ₹17,000 crore when compared to the average allocation of the last seven years, indicating a scenario where most states would be net gainers based on the hypothetical weights and inter-se distribution,” said Soumya Kanti Ghosh, Group Chief Economic Advisor, SBI.
The report simulated a hypothetical framework of normative assessment limited to the Centre’s share, aimed at maintaining a balance between equity and efficiency.
The proposed allocation framework rests on two core principles. The first is equity, intended to ensure that states with higher structural needs, greater dependence on rural workforce, and wider administrative spread receive adequate fiscal space to meet employment demand.
The second principle is efficiency, which seeks to recognise and incentivise states that effectively translate financial allocations into sustained employment generation, durable asset creation, and timely wage payments. The report said seven criteria were identified and categorised under equity and efficiency.
“We take the difference between normative assessment using objective criteria and the average allocation under MGNREGA during FY19–FY25, excluding FY21,” the report noted.
Overall, states are estimated to gain around ₹17,000 crore compared to the average allocation of the last seven years, making them net beneficiaries under the hypothetical framework. Based on the assumed weights and inter-se distribution, all states emerge as gainers except two, which face only marginal losses.
In the case of Tamil Nadu, the report noted that if the outlier year FY24 — which saw a 29 per cent rise in allocation compared to the average of FY22 and FY23 — is excluded, the projected loss becomes negligible.
“Uttar Pradesh and Maharashtra emerge as the top gainers, followed by Bihar, Chhattisgarh and Gujarat,” the report said.
Overall, the SBI report maintained that adopting objective criteria for allocation would enhance devolution for both developed and laggard states by maintaining a balance between equity and efficiency. It added that states could further improve outcomes through their 40 per cent contribution.
— IANS
