Whalesbook
States Press Centre for Increased Fiscal Support
Punjab and Telangana have formally requested additional financial assistance from the Union government ahead of the Budget 2026-27. The core of their demand centers on the newly introduced Viksit Bharat Guarantee for Rozgar and Ajeevika Mission (Gramin) (VB-G RAM G). States argue that the scheme's revised funding structure places an unsustainable fiscal burden upon them.
Rural Employment Scheme Funding Dispute
The VB-G RAM G, which replaces the long-standing Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), now requires states to bear 40 percent of the costs. This marks a significant shift from the previous 90:10 center-state funding pattern under MGNREGA. Punjab Finance Minister Harpal Singh Cheema voiced strong opposition, labeling the changes as a dilution of the employment guarantee and a financial strain. He urged a return to the original demand-driven framework and funding model.
Concerns Over Cooperative Federalism
Telangana Finance Minister Mallu Bhatti Vikramarka echoed these sentiments, asserting that states were not consulted on the transition to VB-G RAM G. He highlighted that the 60:40 funding ratio would further deplete state resources. Vikramarka also pointed out that states would be responsible for any man-days exceeding the allocated norms, creating obstacles for demand-based employment provision. He stated this move contradicts the spirit of cooperative federalism, potentially starving states of funds needed for essential capital outlay and growth.
Broader Fiscal and GST Demands
Beyond the rural employment scheme, Telangana proposed redirecting income and corporation tax surcharges into a non-lapsable infrastructure fund for state grants. Alternatively, merging these surcharges with basic tax rates could expand the central divisible tax pool. On Goods and Services Tax (GST) reforms, Vikramarka questioned the sustainability of GST 2.0, warning of potential state revenue declines due to rate reductions and calling for a clear compensation mechanism. Punjab, citing Rs 6,000 crore annual revenue loss from GST 2.0 and the impact of border tensions and floods in 2025, also sought a dedicated fiscal package and a stable GST compensation framework.