CMs Panel’s Recommendations on Centrally Sponsored Schemes

The chief minister’s sub-group on centrally-sponsored schemes (CSS) has recently recommended that the number of CSS should come down to 30 and flexi-funds can go up to 25 per cent, from the existing 10 per cent.

Before going through the key recommendations of the panel let us analyze why centrally sponsored schemes have failed to meet their objectives.

The concept of centrally sponsored schemes came into existence in 1960s when India was grappling with lot of problems ranging from weak economy to maintaining unity in diversity. State governments did not have the financial resources and the expertise to run ambitious schemes. At that time, the rationale to run these schemes was: matters of national policy such as family planning and resettlement of landless agricultural labourers required the intervention of the Union government. Since then, state governments have acquired a degree of expertise—even if it is wanting in many respects—and have financial resources for what they need to do. But the number of CSS schemes continues to remain in large numbers.

However top down approach of union government in crafting schemes without understanding the diverse requirements of the state has failed miserably. In sectors such as agriculture, education and health, among others, knowledge of local conditions is important for the success of any scheme or project. Their ‘one size fit all’ approach fails to take into account regional diversity, different level of socio-economic development and implementation capabilities of states. It also reduces flexibility of states to design policies suiting their peculiar requirements. Moreover too many schemes creates the problem of overlapping of schemes leading to wastage of resources.

Further estimating the money required for the success of these projects requires a great degree of coordination with state governments. But this seldom happens as bodies for centre state coordination like Planning commission barely represents state. One does not need great imagination to understand why schemes with an India-wide allocation of less than Rs.500 crore don’t make any difference on the ground.

Also the requirement of mandatory contribution by state government acts as hindrances in their effective utilization by financially weak states. This has also been criticized by the Finance commission.

The overall result of the above problems is the inefficient implementation of the schemes despite allocating huge amount of funds.

In this backdrop the sub-group of Chief Ministers under NITI Aayog was formed to examine the current CSS and recommend their suitable rationalization. The chief ministers’ panel was headed by Shivraj Singh Chouhan (Madhya Pradesh) and included Vasundhara Raje Scindia (Rajasthan), Mufti Mohammad Sayeed (Jammu & Kashmir), Raghubar Das (Jharkhand), Okram Ibobi Singh (Manipur) and K Chandrashekhar Rao (Telangana) as members.

Key Recommendations

The CMs’ panel recommended classifying all central schemes into three categories:

  • Core: The first — Core Schemes — should comprise national development agenda that includes legislatively-backed schemes such as MNREGA, Swachchh Bharat Mission and Mid-Day Meal. In core schemes, the fund-sharing pattern between the Centre and states would be 60:40 for general category states. For the eight Northeastern and three Himalayan states, this ratio would be 90:10.
  • Core-of-core: All core-of-core schemes would be fully funded by the Centre. Some of the schemes included in this category are: Mahatma Gandhi National Rural Employment Guarantee Act, National Social Assistance Plan and the National Programme for Persons with Disabilities would continue to be 100 per cent funded by the Centre.
  • Optional: These schemes are for social protection and social inclusion. The fund-sharing pattern between the Centre and states would be 50:50 for general category states and 80:20 for Northeastern and hilly states. Funds for the optional schemes would be allocated to states as a lump sum and states would be free to choose which optional scheme they want to adopt. According to the panel’s report, the NITI Aayog would frame the criteria for lump sum allocations and would monitor the implementation of all the schemes.

Other Recommendations

  • Reducing the number of Centrally-sponsored schemes (CSS) from a burgeoning 72 to 30.
  • The panel is also of the view that the union territories need not implement all schemes and they should decide with central government to implement few important schemes as per their requirement.
  • The panel has also recommended the review of the CSS every two years and wants NITI Aayog to sit with all states once in six months to review the progress of CSS for effective monitoring.
  • To ensure the states spend their share of the funds, the panel suggested the Centre release its share after the states submit utilisation certificates for the installment prior to the previous tranche.
  • The panel also recommended increasing the share of flexi funds to 25 per cent from the current 10 per cent towards the schemes. ‘Flexi-fund’ was introduced in January 2014 to give States more leeway to meet local needs and requirements within the overall objective of each programme.

Implications Of The Move

Rationalization of CSS is logical as the Centre has decided to raise state’s share in taxes to 42 per cent from 32 per cent. In absolute terms, it is estimated that this entails additional devolution of Rs. 1.78 lakh crore to the States and shrinking of funds with the central government. This means now states will have more financial resources to run schemes on their own.

In the proposed structure the states will have the flexibility of choosing the optional schemes they want to implement. The fund meant for the scheme opted out by any state can be used in other schemes. The states will be free to deselect some components of a scheme they are implementing according to their local requirements. This will help address the problem of allegations by the state government of lack of autonomy in designing region specific schemes.

Moreover there are often reports of unused funds or lack of transparency in the utilization of funds. Now this problem should be addressed as disbursal of funds are on the basis of utilization certificates of prior installment. For better utilization of funds, the panel had approved transferring of funds from the central government to the state consolidated funds and not directly to implementing agencies. Increase in the share of flexi funds to 25 per cent from the current 10 per cent would give more flexibility to States to spend on development and social welfare schemes.

Panel recommendations are also important in the backdrop of termination of status of Special Category States after the 14th finance recommendation. Its notable that the report has used phrase “8 NE and 3 Himalayan states” instead of “special category states”. This might have some implications. Some States were of the view that withdrawal of special category status by finance commission would be a big blow to the interest of those states which had been suffering from backwardness and utter underdevelopment since long. But now if the present report (CM sub group) gets implemented then funding from the Union government for central schemes in these states is likely to be retained. Second, the formulation of special category states as “8 NE and 3 Himalayan states” may eventually completely erase out the phrase of special category status. This will bring a much-needed end to the practice of states queuing up for special category status largely on political grounds.

Further, massive restructuring and transfer of central services and development schemes to states is also part of the government’s policy of cooperative federalism. The constitution of the sub-group is an excellent example of involving the states in the decision-making process.

Although the report has not yet been accepted by the Centre, yet there is a broad consensus among various stake holders that drastic pruning of CSS is essential now. Perhaps it is time to revisit the original rationale for launching CSS and moving to a future where states take up the responsibility of economic development. The country needs to move away from ‘one size fits all’ schemes, and forge a better match between schemes and the states’ needs.

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