Centrally Sponsored Schemes (CSSs)

Posted 12 Sep 2024

Updated 14 Sep 2024

5 min read

Why in the News?

As part of the expenditure reforms, the NITI Aayog has initiated a process for revamping of Centrally Sponsored Schemes (CSSs).

More on the News

Development Monitoring and Evaluation Office (DMEO) of the NITI Aayog has invited proposals to engage consultancy firms to support the evaluation of CSSs in nine broad sectors.
These 9 sectors are: Agriculture and Allied Sector; Women and Child Development; Education, Urban Transformation & Skill Development; Rural Development Sector; Drinking water and sanitation; Health Sector; Water Resources, Environment and Forest Sector; and Social Inclusion, Law & Order and Justice Delivery.

About Centrally Sponsored Schemes

Definition: CSSs are Schemes that are funded jointly by centre and state and implemented through the State in sectors falling in the State and Concurrent Lists of the Constitution.

Informational graphic with the title "Do you know?" followed by details about Central Sector Schemes (CS). It states that there are 676 CS directly implemented and financed by the central government, with a total outlay of 15 lakh crore for FY 2024-25.

Features: Current framework of the CSSs is based on the report by Sub-Group of Chief Minsters on Rationalisation of CSSs (2015).
- Focus: The focus of CSSs should be on Schemes that comprise the National Development Agenda for realizing Vision 2022, where the Centre and States need to work together.
- Current Status: Currently there are 75 CSSs in 3 categories and they constitute around 10.4% of the Centre’s budget expenditure.

An infographic titled "Types of CSS" divided into three sections: Core Schemes, Core of the Core Schemes, and Optional Schemes. Each section lists examples and details, with Core Schemes aligned with the National Development Agenda and states having the freedom for Optional Schemes.

Funding: All transfers to States for CSSs are being routed through the Consolidated Fund of the State.
- Following the recommendations of the 14^th Finance Commission (FC) and the abolition of Plan-Non Plan distinction from 2017, Centrally Sponsored Schemes (CSSs) and Central Sector schemes (CSs) have become the primary mode of specific purpose transfers made by the Union to the States.
- Funding pattern for Core Schemes:
  - 8 North Eastern States and 3 Himalayan States: Centre: State is 90:10
  - Other States: Centre: State is 60:40
  - Union Territories: without Legislature, Centre 100%.
- Monitoring: NITI to have concurrent jurisdiction in the monitoring of CSSs and also oversee Third-Party Evaluation.

Rational of CSSs

Principle of Subsidiarity: A central authority should have a subsidiary function, performing only those tasks which cannot be performed effectively at a more immediate or local level.
Equalization of basic services across states: For example, Health Schemes ensure equalization of health services across states.
Prioritising Merit Goods: Goods such as subsidised housing or social services, which predominantly help the poor, or health care services, have a strong claim on government resources.
Directive Principles of State Policy: These should guide governments at all levels and provides the constitutional basis for national efforts in some areas, like removal of inequality (Article 38), education (Article 45), the welfare of weaker sections (Article 46) public health (Article 47).

Issues associated with current framework of CSSs

Resource distribution issues: The Budget Estimate for FY 2021-22 shows that 15 schemes account for 91.14% of total expenditure. Even within an ‘umbrella’ schemes, there are many sub-schemes that receive minuscule amounts.
- Green Revolution CSS has 18 different sub-schemes. The Rainfed Area Development and Climate Change Sub-scheme has an allocation of ₹ 180 cr. whereas National project on Agro-Forestry has an allocation of ₹ 34 cr.
Large number of Schemes: Existence of Large number of small schemes or multiple small sub-components of a scheme leads to duplication of efforts and a thin spreading of resources.
Less fiscal space for items in Union List: Union’s expenditure on state items has gone up considerably, hence constrained fiscal space for the items in the Union list.
- Example, Defence expenditure has reduced from 2% of the GDP in 2011-12 to 1.5% in 2019-20 RE (National Institute of Public Finance and Policy).
‘One size fits all’ approach: Contours of the CSSs are defined by the Union Ministry making it difficult to accommodate inter and intra state differences.
Lower absorption capacity in some states: CSSs requires matching contributions from states, leading to lower investment in states where it is needed most.
- Further, states with lower GSDP are also unable to absorb the released funds on time due to inadequate capacity in terms of manpower, skills, technical expertise and weak governance.
Suboptimal monitoring: Currently, the CSSs focus more on processes (what and how to do) rather than outcomes, so monitoring is based on inputs, not actual results.

Way forward

Prioritising funding: Gradually stop the funding for the CSSs and their subcomponents that have either outlived their utility or have insignificant budgetary outlays not commensurate to a national programme (15^th FC)
A threshold level of fundings: According to the Arvind Varma Committee in 2005, a new CSS should be introduced only if the annual outlay is greater than ₹ 300 crores.
- For the existing smaller schemes, the amount should be transferred to states as Normal Central Assistance.
Inflation indexed Funding: Financial norms of certain components of schemes like cooking cost of midday meal or PM-POSHAN Scheme should be linked to the wholesale price index and should be revised every 2 years.
Improved Governance: According to the 15^th Finance Commission:
- The funding pattern of the CSSs should be fixed upfront in a transparent manner and should be kept stable.
- Financing can be provided based on bilaterally agreed 'compacts' related to specific objectives (for example, service delivery outputs or specific outcomes) instead of exhaustively discussed implementation plans.
  - To support this approach, the Union Government can support initiatives to enhance data systems, monitoring and evaluation and transparency.
- The flow of monitoring information should be regular and should include, apart from routine statements of financial and physical progress, credible information on output and outcome indicators.