Demystifying Centrally Sponsored Schemes

The total plan outlay in the Union Budget is the sum of Central Plan and Central Assistance for State and UT plans. Here, we discuss the entirely to list the major programs under the Central Assistance for States and UT plans. It should be noted that Centrally Sponsored Schemes (CSS) forms a major chunk of the Central Assistance for State and UT plans.

What are centrally Sponsored Schemes (CSS)
Usually, Center 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, Center sponsors fully or partially many programmes on items mentioned in State list. These programs are called Centrally Sponsored Schemes.

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 interchangeably.

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 Rs. 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.

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 plans. 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 (Finance Commission 2015: 88). 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 up.

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:

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 eliminated.
• 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 to.
• From the Central Government’s perspective, 30 schemes is still a large number.
• 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.

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

• The allocation for CSS has increased from 2.08 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 CSS.

Changes in funding pattern for CSS:

• There has been a change in funding pattern for CSS for the second straight year.
• This year, CSS have been divided into three new categories. The first category — ‘Core of the Core schemes’— comprises of six umbrella schemes of utmost priority.
• This includes MGNREGA and other programmes for social protection. 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 states.
• 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 budgets. 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 ratio.
• 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 area.
• 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 government.
• The three proposals above, on the balance, seem to present a pretty good deal for the states.
• But the question is: what is it that the Union government hopes to gain out of this restructuring?
• 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 Centre.
• 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 schemes.
• 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 plan.
• 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 commitments.
• 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 priorities.

List of the Centrally Sponsored Schemes
At present, there are 72 CSS, including six new schemes introduced by the NDA government. Budget 2015-16 mentions about bringing down the number of Centrally Sponsored Schemes (CSS) in tune with the higher allocation for states as per 14th Finance Commission recommendations. Now there are only 31 schemes fully supported by Union Government and 24 schemes under partial support. 8 schemes are de-linked from center’s support.

Schemes to be fully supported by Union Government (100%)

1. Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGA).
2. Multi Sectoral Development Programme for Minorities (MSDP)
3. Pre-Matric Scholarship for children of those engaged in unclean occupation.
4. Scholarship schemes (Post and Pre Matric) for SC, ST and OBCs
5. Support for Machinery for implementation of Protection of Civil Rights Act, 1955 and Prevention of Atrocities Act 1989.
6. National Programme for persons with Disabilities
7. Scheme for providing Education to Minorities
8. Umbrella scheme for education of ST Children
9. Indira Gandhi Matritva Sahyog Yojna (IGMSY)
10. Integrated Child Protection Scheme (ICPS).
11. Rajiv Gandhi Scheme for Empowerment of Adolescent Girls (RGSEAG)- SABLA
12. National Nutrition Mission (NNM)
13. Scheme for protection and development of women Assistance for schemes under proviso(i) to Article 275(1) of the Constitution
14. Special Central Assistance to Tribal Sub-Plan
15. Sarva Shiksha Abhiyaan (Financed from Education Cess)
16. Mid Day Meal
17. Schemes of North Eastern Council
18. Special Package for Bodoland Territorial Council
19. National Social Assistance Programme (NSAP) including Annapurna
20. Grants from Central Pool of Resources for North Eastern Region and Sikkim
21. Social Security for Unorganized Workers Scheme
22. Support to Educational Development including Teacher Training and Adult Education.
23. Border Area Development Programme
24. Member of Parliament Local Area Development Scheme (MPLADS)
25. Cess backed allocation for Pradhan Mantri Gram Sadak Yojna (PMGSY)
26. Roads and Bridges financed from Central Road Fund
27. Project Tiger
28. Project Elephant
29. Additional Central Assistance for Externally Aided Projects (Loan Portion)
30. Additional Central Assistance for Externally Aided Projects (Grant Portion)

Schemes to be run with the Changed Sharing Pattern (50:50,60:40, 90:10)

1.Cattle Development
2. Mission for Integrated Development of Horticulture
3. Rashtriya Krishi Vikas Yojana
4. National Livestock Mission
5. National Mission on Sustainable Agriculture
6.Dairy Vikas Abhiyaan
7. Veterinary Services and Animal Health
8.National Rural Drinking Water Programme
9. Swaccha Bharat Abhiyaan (Rural and Urban)
10. National Afforestation Programme
11. National Plan for Conservation of Aquatic Eco-Systems (NPCA)
12. National AIDS and STD Control programme
13. National Health Mission
14. National Urban Livelihoods Mission (NULM)
15. Rashtriya Madhyamik Shiksha Abhiyaan (RMSA)
16. Strategic Assistance for State Higher Education – Rashtriya Uchcha Shiksha Abhiyan (RUSA)
17. For Development of Infrastructure Facilities for Judiciary
18. National Land Records Modernisation Programme
19. National Rural Livelihood Mission (NRLM)
20. Rural Housing- Housing for All
21. Integrated Child Development Service
22. Rajiv Gandhi Khel Abhiyan (RGKA) (erstwhile Panchayat Yuva Krida aur Khel Abhiyan (PYKKA)
23.PMKSY(including Watershed programme and Micro-irrigation)
24. Impact Assessment Studies of AIBFMP

However, the Centre-State funding pattern is being modified in view of the larger devolution of tax resources to States as per the recommendations of 14th Finance Commission whereby in this scheme, the revenue expenditure is to be borne by the States. Subsequent to changed funding pattern, overall expenditure on the schemes will not decrease.

Schemes delinked from support of the Centre

1. National e-Governance Plan
2. Backward Regions Grant Funds
3. Modernization of Police Forces
4. Rajiv Gandhi Panchayat Sashaktikaran Abhiyaan (RGPSA)
5. Scheme for Central Assistance to the States for developing export infrastructure
6. Scheme for setting up of 6000 Model Schools
7. National Mission on Food Processing
8. Tourist Infrastructure

Why are some CSS de-linked from Center’s support?
As states are now given more direct funds which offer greater flexibility (extra to regular CSS), there is no need for additional spending through the CSS route by the Center.

Why there are still CSS?
Ideally, all CSS should go. Funds should flow to states without pre-conditions to ensure greater flexibility. The center will save on inter-mediation costs and in the long term, there would also be higher implementation efficiency in terms of outcome yields on every rupee spent. But there are still Centrally Sponsored Schemes running on state subjects. The reasons are the following:

1. Keeping in mind that some of these schemes represent national priorities especially those targeted at poverty alleviation, Centre has decided that it will continue to contribute to such schemes.
2. The schemes mandated by legal obligations and those backed by Cess collections have been fully provided for.

Finance Commission and Recommendations
Finance commission (FC) recommended 42 percent of Union Tax as share to states (vertical devolution). But will FC deal with the split the 42 percent tax share among different states (horizontal distribution

• The objective of 14th FC has been to fill the resource gaps of each State to the extent possible through tax devolution.
• FC believe that while there are certain common factors that impact cost disability and fiscal capacity of States, there exist circumstances that are unique to individual States.
• FFC did not make a distinction between special and general category states in determining their norms and recommendations.
• However, FC have provided post-devolution revenue deficit grants for States where devolution alone could not cover the assessed gap.
• Hence, Normal Central Assistance, Special Plan Assistance, Special Central Assistance and Additional Central Assistance for other purposes are subsumed in the award itself.

Highlights of Fourteenth Finance Commission

Appointed every five years, the Finance Commission is a Constitutional body with the broad mandate to define the center-state fiscal relations. Its most important task is to recommend the division of tax revenues collected by the Center (excluding cetain items such as cess) called the “divisible pool” between the Center and States and the share to be allocated to each State. But it also makes recommendations on other tax related issues as per the terms of references.

• Fourteenth Finance Commission (FFC) recommendations covering five years period beginning 1.4.2015 were tabled in the House on 25th February, 2015 along with an Explanatory Memorandum on the Actions Taken by the Government.
• An important recommendation of FFC is the devolution of a significantly higher share of 42% of the divisible pool to States compared with the 32% share recommended by the Thirteenth Finance commission. Accordingly, the total devolution to the States in 2015-16 will be Rs 5.26 lakh crores, which is Rs. 1.78 lakh crores more than in 2014-15.
• The larger devolution is a response to the demand by States for increased flow of untied fiscal resources in place of tied resources that come with Centrally Sponsored Schemes. The government has accepted this recommendation.
• The horizontal devolution formula1 recommended by the 14th Finance Commission incorporates two new variables, the 2011 population and forest cover. At the same time, it does not take into account fiscal discipline, a criterion included by the Thirteenth Finance Commission in its formula.
• As per the terms of reference, the FFC also provides revenue deficit grants to the 11 States so identified. The total revenue deficit grant over the five years to these states is Rs. 1,94,821 crore. This recommendation has been accepted in principle. The institutional arrangements for the implementation of this recommendation are yet to be put in place.
• Focus on local bodies has been an ongoing concern and the FFC has recommended that grants to local bodies should be only for basic services and functions assigned to them under relevant legislation. The Commission has recommended grants of Rs 2.87 lakh cr in total over the five years.

Devolution Formula in 13th and 14th Finance Commission

The Government has accepted this recommendation. (Source: Explanatory Memorandum as to the Action Taken on the Recommendations Made by the 14th Finance Commission in its report submitted to the President on December 15, 2014, Department of Economic Affairs, Ministry of Finance)

Other recommendations by FFC concern GST, Fiscal Consolidation Roadmap and Pricing of Public Utilities, Public Expenditure Management. These recommendations are under examination. Basic Grant (Rs. in cr) Performance Grant (Rs. in cr) Gram Panchayats 1,80,263 20,029 Municipalities 69,715 17,428