As New Delhi enters the final stretch of preparations for the 2026-27 Union Budget, the atmosphere is thick with the language of transformation. In the high-ceilinged corridors of North Block, officials speak of “normative allocations,” “asset creation,” and “infrastructure verticals.” But in the villages of India’s heartland, the conversation is far simpler—and more urgent: survival.
For nearly two decades, the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) functioned as the country’s safety net of last resort. Since early 2026, that net has been significantly rewoven. Through a set of legislative amendments and budgetary restructuring—collectively referred to by the government as the Viksit Bharat–G RAM G framework—the programme has been repositioned as a “modernised” rural employment mission. While the changes promise efficiency and durability, they also signal a deeper shift in the nature of the state’s obligation to the rural poor.
At stake is not merely a policy redesign, but the future of a welfare bargain that once treated employment as a legal right rather than a fiscal contingency.
On paper, India’s macroeconomic indicators appear reassuring. Headline consumer inflation fell to around 1.3 per cent in late 2025, while food inflation entered negative territory, hovering near –2.7 per cent, according to recent CPI data. For urban consumers, this has been framed as a “soft landing”—a moment of price stability.
In rural India, however, negative food inflation tells a different story. It means that wheat, pulses, and vegetables fetch less in the market than they did a year ago, even as household expenses continue to rise. Out-of-pocket costs for healthcare, education, transport fuel, and agricultural inputs have increased steadily—by roughly 3 to 4 per cent annually, as reflected in expenditure surveys and budget documents.
This growing terms-of-trade disadvantage is steadily eroding rural purchasing power. Against this backdrop, the government’s much-signalled “double-digit” increase in rural allocations in the upcoming budget is less a populist gesture than a fiscal necessity to prevent further contraction in rural demand.
The centrepiece of the rural reset is the restructuring of the employment guarantee itself. Under the new framework, the statutory ceiling of work has been raised from 100 to 125 days per household—an announcement that has drawn positive headlines. But the more consequential change lies in how that work is now financed and delivered.
MGNREGA was designed as a demand-driven programme: if a worker demanded employment, the state was legally obliged to provide it, with the Centre bearing the primary responsibility for wage payments. The budget, in effect, expanded to meet demand.
Under the revised framework, employment provisioning is tied to “normative allocations”—fixed, pre-approved expenditure caps for each state, determined in advance. Once a state exhausts its allocation, any additional employment must be financed through enhanced state contributions, typically at a 60:40 Centre–state cost-sharing ratio, as indicated in recent Ministry of Rural Development and Expenditure Budget documents.
For fiscally constrained states such as Bihar, Jharkhand, or West Bengal, this shift has profound implications. In years of drought, flood, or economic slowdown—when demand for public employment rises sharply—the legal “guarantee” risks becoming conditional on a state’s borrowing capacity.
“If the money runs out in October, does my right to work also run out?” asks Lakshmi, a landless labourer in Odisha. “Earlier, we knew that if we applied, work had to be given. Now we are told to wait for the allocation.”
The question she raises goes to the heart of the new welfare architecture.
One of the most contentious provisions under the restructured framework is the 60-day agricultural pause, which allows states to temporarily suspend public works during peak sowing and harvesting periods. The stated rationale is to prevent labour shortages in agriculture.
For large landowners, this offers relief. For landless and marginal workers—particularly women—it removes the only credible alternative to low-paid farm labour. Women constitute nearly 58 per cent of MGNREGA workers, and for many, the programme functioned less as supplementary income and more as a bargaining tool.
Policy groups such as the Feminist Policy Collective have cautioned that the pause weakens women’s fallback option, forcing them to accept depressed agricultural wages or precarious informal work. In effect, the suspension risks restoring older power hierarchies in rural labour markets, where choice was shaped less by opportunity than by compulsion.
The forthcoming budget is also expected to emphasise “climate-smart agriculture,” backed by record agricultural credit targets and a higher Minimum Support Price. The MSP for wheat, for instance, has been set at Rs 2,585 per quintal, offering margins well above estimated production costs.
Yet budget outcome statements reveal a growing disconnect between price support and climate resilience. MSP matters only if crops survive to harvest. With unseasonal heatwaves and erratic rainfall projected to cause 15-20 per cent yield losses in several regions, income security remains fragile.
The rural economy increasingly resembles a leaky bucket: subsidies and price support are poured in at the top, while climate shocks drain value from the bottom. What rural India needs is not only income support, but adaptation—investments in water recharge, heat-resilient seeds, decentralised storage, and climate-proofed public works.
The 2026 Union Budget represents a decisive moment for India’s rural policy. The vision of Viksit Bharat prioritises efficiency, digital oversight, and the creation of “durable assets.” These objectives are not misplaced. But development cannot be built by quietly diluting the guarantees that once protected the most vulnerable.
The transition from a rights-based, demand-driven employment law to a budget-capped mission model is a calculated gamble. If promised funding increases fail to materialise at moments of peak distress—during climate shocks or agricultural pauses—the rural–urban divide will only widen.
A budget is more than an accounting exercise. It is a moral document—one that reveals whose risks the state is willing to absorb when markets fail, crops wither, and livelihoods hang in the balance.
Sagari Gupta is a public policy researcher with over eight years of experience in social development, governance reforms, and data-driven policy analysis in India.
Views expressed are the author’s own and don’t necessarily reflect those of Down To Earth