Why finance panel may ask the govt to overhaul, reduce central schemes

The government needs to radically overhaul centrally sponsored schemes by either making them 100 per cent centrally funded or transferring them to states with untied grants. In order to make them more effective, their design and implementation should also go for a complete rejig.

These are the findings of one of the multiple studies commissioned by the Fifteenth Finance Commission as part of work in preparing its own report.

The studies have been carried out by various think tanks. There are 26 reports.

Two reports, by the Indian Council for Research on International Economic Relations (ICRIER), focus on development expenditure in states after the Fourteenth Finance Commission award, on how the states have spent the money, and how the centrally sponsored schemes have fared.

“The numbers need to be pruned to make the CSS (centrally sponsored schemes) more efficient as vehicles of development interventions and to ensure that public spending on them becomes more effective in the Centre and the states. The census of CSS indicates that there is no clear-cut indication of their numbers due to the way the Union presents its outlays on CSS in the Union Budget,” the report stated.

It also said, “While it may seem that there are only 28 CSS operating at present, in reality the number is almost 10 times greater. This is because each of these 28 schemes has multiple sub-components that are schemes in themselves.”

Centrally sponsored schemes are funded by Centre and states combined, as opposed to central sector schemes which are funded wholly by the Centre. In fact there are 30 CSS, for which the budgeted outlay for 2019-20 is Rs 3.32 trillion.

The report recommended making them 100 per cent centrally funded and prioritising them according to the national development program or transferring them to the states and with untied grants up to 13 per cent of total expenditure as scheme specific grants with the option to continue them or making some of the fully centrally funded and yet others transferred to the states with a radical rejig of their design and implementation.

The report on the spending by states finds that during 2015-16 to 2019-20 — the award period of the 14th Finance Commission — total receipts of all states’ increased by 91 per cent, on account of devolution and by 65 per cent, on account of grants. The 14th FC had recommended an increase in devolution to states from 42 per cent from 32 per cent earlier, something which was accepted by the Modi government.

“Eighteen states gained in aggregate terms, on account of both vertical and horizontal devolution. Of these 7 are Himalayan and north-east region states. Ten states lost in aggregate terms, on account of both vertical and horizontal devolution of which 4 are Himalayan and north-east states,” the report stated.

The report said that states had additional resources of Rs 9.56 trillion after the 14th FC award. Out of that, average spending on social services was higher by Rs 3.44 trillion and accounted for about 36 percent of the additional expenditure.

“Economic services was higher by Rs 3.67 trillion and accounted for about 38 per cent of the additional expenditure and general services was higher by Rs 2.29 trillion and accounted for about 24 per cent of the additional expenditure,” it said.