Budget 2026–27: Government plans double-digit hike in rural scheme allocations to boost growth, demand

New Delhi: The government is planning to further bolster its rural focus with a double-digit growth in allocations for key schemes in the upcoming budget for 2026-27, people aware of the deliberations said.

The ministry has an outlay of Rs 1.88 lakh crore for this financial year, up nearly 8% from a year before. While the allocation for the rural employment guarantee programme under a new law could be raised by almost 11% in 2026-27 from the revised estimate for this fiscal, both rural housing and roads schemes are likely to see even steeper increases in outlays, according to the people.

For the current fiscal, the government had budgeted Rs 86,000 crore for the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS), Rs 54,832 crore for the Pradhan Mantri Awas Yojana-Gramin (PMAY-G) and Rs 19,000 crore for Pradhan Mantri Gram Sadak Yojana (PMGSY). Together, these three schemes accounted for 85% of the rural development ministry’s outlay this fiscal.

High Multiplier Effect

The Viksit Bharat Guarantee for Rozgar and Ajeevika Mission (Gramin) (VB-G RAM G) scheme, with a likely outlay of over Rs 95,000 crore for 2026-27, is proposed to replace the MGNREGS. “The rural development ministry has sought a decent increase in allocation for the next fiscal.

The budget estimates for important schemes next fiscal year could see a double-digit growth in hike upon the revised estimates for this fiscal,” one of the people told ET. Higher rural spending under these schemes that help create durable assets in the hinterlands is expected to spur economic growth, while supporting rural demand.

Schemes, such as those for rural housing and roads, have a high multiplier effect, while the employment guarantee programme adds to the income of unskilled rural workers.

Revised FY26 Outlay

The allocations for the PMAY-G and PMGSY would be pruned significantly in the revised estimates for the current fiscal due to lower-than-expected expenditure one of the people said. The cabinet had in 2024 approved Rs 3.06 lakh crore to build 30 million new houses across the country over five years, 20 million of which would be built under the PMAY-G.

However, the construction of houses under the latest phase this fiscal got impacted due to the time taken for the identification of eligible beneficiaries through a new survey, ET has learnt. Against the rural development ministry’s target of completing 3.51 million houses under the scheme this fiscal, only 1.8 million have been built so far.

However, the construction is expected to gain traction in the coming months, as the exercise to firm up the beneficiary list is mostly over, requiring more funds.

As for rural roads, the spending under this programme this fiscal has been lower than anticipated, as the list of habitations for coverage under the latest phase required more time. The government had in September 2024 approved a Rs 70,125 crore package spanning five years for the fourth and the latest phase of PMGSY by revamping the ongoing programme.