Kerala's Finance Minister, K N Balagopal, has issued a stark warning that recent modifications to the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) by the central government will impose a massive additional financial burden of Rs 1,600 to Rs 2,000 crore on the state's exchequer. The minister voiced these concerns while addressing the ninth IS Gulati Memorial Lecture in Thiruvananthapuram.
Centre's Funding Shift Creates Fiscal Strain
Balagopal explained that the core of the problem lies in the altered funding pattern. Historically, the central government bore 90% of the MGNREGS expenditure. Under the new arrangement, this contribution is set to be reduced to just 60%, forcing state governments to shoulder a significantly larger share. For Kerala, which received Rs 4,838 crore from the Centre for the scheme last year, this change translates into a steep fiscal challenge.
The minister was specifically reacting to the introduction of the Viksit Bharat Guarantee for Rozgar and Aajeevika Mission (Gramin) (VB-G RAM G) Bill 2025 in the Lok Sabha, which aims to replace the existing MGNREGS framework. Local Self-Government Minister M B Rajesh has also estimated the state's annual additional burden at around Rs 1,600 crore.
Kerala's Unique Challenges Amidst Centralization
Balagopal emphasized that frequent policy shifts in the financial domain by the Centre create instability for states like Kerala. He highlighted a critical disparity: while the Centre's share of total revenue averages 53% at the national level, for Kerala it stands at a mere 25%. This is compounded by the state's unique demographic challenge of having the highest proportion of elderly citizens in India.
"Despite these challenges, the Centre continues to impose measures that financially squeeze the state," Balagopal stated. He argued that Kerala's resilience stems primarily from its own capacity to raise tax revenues. Asserting that India is a union of states, he stressed that both the Centre and states should hold equal importance, warning that centralizing greater financial powers undermines the federal structure.
Experts Echo Call for Equitable Financial Transfers
The memorial lecture also featured insights from other eminent economists. D K Srivastava, Chief Policy Advisor at Ernst & Young and a member of the 12th Finance Commission, underscored the necessity of prioritizing equity in financial transfers between the Centre and states. He acknowledged that while disparities in revenue and expenditure across states remain a major challenge, there is a gradual narrowing, which is an encouraging sign.
Moderating the session, former finance minister T M Thomas Isaac reinforced that equity must be the guiding principle in resource allocation to states. He expressed concern that disparities in per capita income and private investment across different states are actually widening, a trend that needs urgent addressal.
The event, organized by the Gulati Institute of Finance and Taxation, brought into sharp focus the ongoing tensions in fiscal federalism and the specific pressures faced by performing states like Kerala due to changes in flagship central schemes.
