Structure

• Introduction
• Body
• conclusion

Centrally Sponsored Schemes (CSS)

• Centrally Sponsored Schemes (CSSs) are special purpose grants (or loans) extended by the Central Government to States to encourage and motivate State governments to plan and implement programmes that help attain national goals and
• Examples of national goals and objectives include extending clean drinking water and sanitation to every habitation, eradicating polio and tuberculosis, making primary education universal for every female and male child, and so

Background

• CSS are extended by the Union Government to States under Article 282 of the Constitution
• Usually, Centre can run schemes only on subjects mentioned in Union list (Central Plan/Central Sector Schemes). It’s the duty of the states to implement programmes on items mentioned in the State list. But to encourage states to take up projects and programmes in the national interest, Centre sponsors fully or partially many programmes on items mentioned in State list. These programs are called Centrally Sponsored
• To be precise, CSS is the biggest component of Central Assistance to state plans (CA), where states don’t have much flexibility. The other component – block grants to states – is a grant and states have full flexibility in utilizing.
• But in the Budget 2015, many of the plan grants (block grants) like Normal Central Assistance, Special Plan Assistance, Special Central Assistance and Additional Central Assistance for other purposes are subsumed in the award of FC itself (greater share of taxes and non-plan grants). Thus, though considered as two separate entities before, Centrally Sponsored Schemes (CSS) now being the major part of Central Assistance (CA) to states, the terms CSS and CA are often used

Criticism of Centrally Sponsored Schemes

• CSS dictate Centers’ agenda and priorities which may not be relevant for
• CSS offers little flexibility for the states.
• Needs of states differ among themselves and a universal CSS package may not be practical in all cases.
• Many CSS which offers only partial support from Center may impose a burden on

Budget allocation to CSS

• NITI Aayog’s Arvind Panagariya recommends reducing CSS
• As per the Union Budget 2015-16, the total Plan Outlay for 2015-16 is 4,65,277 crore. The Budgetary support for Central Plan in 2014-15 is Rs.2,60,493 crore while the total central assistance for State and Union Territory Plans is Rs.2,04,784 crore. It should be noted that while the budgetary support for Central Plan has increased, the central assistance to state plans has decreased this year.

Changes in the CSS

• The changes in CSS started last financial year with a higher tax devolution recommended by the Fourteenth Finance Commission (FFC).
• This higher tax devolution without a corresponding increase in revenue receipts meant that the Union government restructured its approach of running a plethora of central schemes under state Specifically, the Union government decreased its own support for some of them in last year’s budget. In a few cases, the government discontinued some centrally sponsored schemes altogether, bringing down the total number of CSS from 147 to 66.
• On the other hand, the response of the states to the question of CSS restructuring was two-fold. Initially, states had submitted to the FFC that proliferation of CSS impinges upon their fiscal autonomy as they do not have any say in design of these schemes and face many restrictions in their implementation. At the same time, states also clearly demonstrated an endowment effect — they continued to see CSS an important source of money that they weren’t willing to give
• To resolve this paradox on CSS, a sub-group of chief ministers on the rationalisation of centrally sponsored schemes was constituted as part of NITI Aayog in March, 2015.
• The proposals in the recent Union budget on vertical distribution of specific purpose grants are entirely the handiwork of this sub-group. These proposals are summarised and critiqued below:

1. The number of CSS has gone down from 66 to 30:

• This figure is going to garner a lot of media attention. What will go unnoticed is that the consolidation does not mean that 36 schemes have been
• Rather, there are hardly any schemes that have been discontinued. The reduction has come about as multiple schemes have been clubbed together into one umbrella scheme for each sector.
• This serves the states well, who will now have a greater say over implementation, even though their demand of flexibility in implementing the sub-schemes has not been agreed
• From the Central Government’s perspective, 30 schemes is still a large
• A better approach might have been to go all out on only on a handful of high-priority areas like health or rural development for a pre-defined time and subsequently moving on to other areas.

2. The allocation for these 30 schemes has increased in absolute terms:

• The allocation for CSS has increased from 08 lakh crores to 2.34 lakh crores (an increase of 12.5% in absolute terms).
• But states are unlikely to talk about this increase in their respective budgets. Chief Ministers in their budget speeches will instead express disappointment over the decrease in the number of

3. Changes in funding pattern for CSS:

• There has been a change in funding pattern for CSS for the second straight
• This year, CSS have been divided into three new
  • The first category — ‘Core of the Core schemes’— comprises of six umbrella schemes of utmost
  • This includes MGNREGA and other programmes for social There’s no change in the funding pattern for such schemes.
  • The second category—19 ‘Core schemes‘ will be shared in 60:40 ratio between the Union and the states and in the ratio of 90:10 for the eight North Eastern and three Himalayan
  • The schemes here comprise of essential interventions as the National Development Agenda for realizing VISION 2022 (Sub-group report, NITI Aayog: 24).
  • The third category comprises of three ‘optional schemes‘, which the states can implement if they choose to.
• This changed pattern is likely to be featured in all state

Analysis

For states perspective

• Chief Ministers will claim that the state’s fiscal plans will be affected, mainly on account of increasing contributions to those ‘Core schemes’ on which they otherwise spent less than 40%.
• A trick that this budget missed is shifting to a regime of specific purpose open-ended matching grants instead of a fixed 60:40
• The fixed ratio will mean that states will be compelled to implement these schemes just to avail of the 60% assistance, even if they have done considerably well in a particular
• For instance, Kerala might be reluctant to shift its focus from primary education to other priority areas even though it has done considerably well in the former, just because of the political economy around the 60% assistance promised by the central
• The three proposals above, on the balance, seem to present a pretty good deal for the

Union govt

• After all, it adopted the recommendations, without modifications, of a sub-group of nine CMs, six of whom were not from the ruling party at the
• The Union government has essentially got the nod of states on just one issue—essentially a post-dated cheque from states that they will agree to shift from expenditure-based monitoring to outcome-based monitoring for these
• Ideally, the Union government should have opted to focus only on a few key priorities, but for now it appears that any major change has been put at abeyance until the end of the 12th
• For now, the action now shifts to the state budgets
• Last year, states hardly had any time to react to the changes proposed by the FFC, and they went ahead with changes at the margin to their
• This year, they have a better idea of the fiscal space available to them and are in a better position to decide and shape their own

Funding Pattern would be as follows:

• Core of the Core Schemes:
  • Existing Funding pattern of the Core of the Core Schemes would
• Core Schemes:
  • For 8 North Eastern States and 3 Himalayan States: Centre: State: 90:10
  • For other States: Centre: State: 60:40
  • For Union Territories (without Legislature): Centre 100% and for UTs with legislature existing funding pattern would
• Optional Schemes:
• For 8 North Eastern States and 3 Himalayan States: Centre: State: 80:20
• For other States: Centre: State: 50:50
• For Union Territories: (i) (without Legislature) - Centre 100%
• (ii) Union Territories with Legislature: Centre: UT:80:20

Flexibility and Flexi-funds to the States/UTs:

1. While designing the CSS, the Central Ministries shall permit flexibility in the choice of components to the States as available under the Rashtriya Krishi Vikaas Yojana (RKVY).
2. Moreover, the flexi-funds available in each CSS has been raised from the current level of 10% to 25% for the States and 30% for the UTs of the overall annual allocation under each Scheme so that the implementation can be better attuned to the needs of individual State/UT.