The fund sharing between the Centre and states under the new VB-G RAM G will be based on normative assessment
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NEW DELHI — The fund sharing between the Centre and states under the new VB-G RAM G will be based on normative assessment, and states stand to gain around INR 17,000 crore when compared to average allocation of last seven years, an SBI Research report showed on Monday.
Using a simulated scenario of normative assessment of (only Centre’s share), with seven attributes/parameters spread across twin fulcrum of equity and efficiency, “we estimate the states gain around INR 17,000 crore when compared to average allocation of last 7 years, hinting at a scenario where most of the states will be net gainers based on the hypothetical weights and 'inter-se' distribution,” said Dr Soumya Kanti Ghosh, Group Chief Economic Advisor, State Bank of India (SBI).
The report simulated a hypothetical scenario of normative assessment of only Centre’s share ensuring balance between equity and efficiency.
The hypothetical allocation framework is premised on two core principles. First, equity, to ensure that states with higher structural need, greater rural workforce dependence and wider administrative spread are provided adequate fiscal space to meet employment demand.
“Second, efficiency, to recognise and incentivise states that translate financial outlays into sustained employment, durable asset creation and timely wage payments. We have taken seven criteria and divided them into equity and efficiency,” the report mentioned.
“We take the difference between Normative assessment using objective criteria compared to the Average allocation under MGNREGA over FY19-25 excluding 2020-2021,” it noted.
Overall, the states gain around INR 17,000 crore when compared to average allocation of last 7 years. Hence, overall, the states will be net gainers. Based on the hypothetical weights and inter-se distribution, all states gain “in our hypothetical scenario barring two states with almost minimal losses”.
In case of Tamil Nadu, if we remove the outlier in FY24 (29 per cent rise in allocation compared to average of FY22 and FY23), the loss becomes negligible.
“UP and Maharashtra emerge to be top gainers followed by Bihar, Chhattisgarh, Gujarat,” the report said.
Overall, we believe that using the objective criteria will lead to enhancement of devolution for both developed as well as laggard states by maintaining a balance between equity and efficiency, the SBI report maintained, adding that states can further enhance the outcome through their 40 per cent contribution.