How the New VB-G RAM G Fund Allocation Could Benefit States by ₹17,000 Crore

A recent SBI Research report reveals that the new VB-G RAM G fund allocation model could provide states with an additional ₹17,000 crore compared to previous years. This model focuses on equity and efficiency, ensuring that states with greater needs receive adequate support. The report highlights that most states will benefit financially, with Uttar Pradesh and Maharashtra emerging as the top gainers. This new approach aims to enhance the overall financial distribution while encouraging states to contribute further to their outcomes. Read on to learn more about the implications of this funding model.

By Narendra Chaudhary Dec 29, 2025, 10:41 IST

New Fund Allocation Insights

New Delhi: According to a recent report from SBI Research, the new VB-G RAM G fund distribution between the central government and states will be determined through a normative assessment. This approach is expected to result in states receiving approximately ₹17,000 crore more than the average allocations over the past seven years.

The report outlines a simulated scenario focusing solely on the Centre’s share, utilizing seven parameters that balance equity and efficiency. Dr. Soumya Kanti Ghosh, the Group Chief Economic Advisor at SBI, stated that this model suggests most states will benefit financially based on the proposed distribution metrics.

The allocation framework is built on two fundamental principles: equity, which aims to provide states with significant structural needs and a large rural workforce the necessary fiscal resources to address employment demands, and efficiency, which rewards states that effectively convert financial resources into sustainable employment and infrastructure.

The report highlights that the difference between the normative assessment and the average allocation under MGNREGA from FY19 to FY25 (excluding FY21) indicates a net gain for states. Overall, the analysis suggests that all states, except for two with minimal losses, will see financial benefits.

Specifically, Tamil Nadu's losses are minimal when excluding an outlier from FY24, which showed a 29% increase in allocation compared to the averages of FY22 and FY23.

The report identifies Uttar Pradesh and Maharashtra as the primary beneficiaries, followed by Bihar, Chhattisgarh, and Gujarat. It emphasizes that applying objective criteria will enhance fund distribution for both advanced and underdeveloped states while maintaining a balance between equity and efficiency. Furthermore, states can improve their outcomes through a 40% contribution.