In the final year of its term, the previous government decided to effect a significant restructuring in one channel of transferring funds to states. Centrally sponsored schemes - 146 in number - were first consolidated into 83, both through mergers and termination. Then, it was decided that instead of the funds for these being allocated to the relevant ministry at the Centre, which, consequently, effectively owned the scheme, the Union finance ministry would directly transmit the funds for each scheme to the state governments that were implementing them. In theory, both these measures would help address mounting criticism about the efficiency and impact of these schemes. One was that several of them were so small that monitoring from a distance was very difficult. Another was that even with the large schemes, they were essentially designed by the Centre, with not enough attention being paid to local priorities and conditions. Overall, relatively large amounts of money were being spent with payoffs unquestionably below par.
This government has broadly accepted the restructuring plan, pumping about Rs 3.4 lakh crore into the schemes. However, there are reasons to believe that the confidence may be premature. Even in the new arrangement, there are still potential pitfalls in achieving desired levels of delivery and cost efficiency. The main stumbling block is that even though they may no longer have direct control over disbursing funds, the relevant central ministries will still have a critical monitoring role. Fund flows could, thus, depend on the approval of the ministry. This represents indirect ownership and control, giving the central ministry the power to continue funding schemes that are not delivering, as well as stopping the flow or resources to schemes that are at least partially delivering. Politics of patronage or opposition will almost inevitably play an important role in influencing these undesirable outcomes.
In a nutshell, the reform of this very important source of development funding is incomplete. States must certainly have the autonomy to decide on what schemes are most important, given their priorities and local conditions. Equally, the Centre, on the principle of accountability to taxpaying citizens, must take on the responsibility of ensuring that all funds are spent as efficiently and effectively as possible. But the balance between these two objectives is not necessarily going to be found through preserving the role of the central ministries. The world over, monitoring and evaluation functions are being seen as being most effectively done by independent agencies. The Union government has also bought into this idea, setting up the Independent Evaluation Office. The right way to balance the design and implementation roles of the state government and the accountability requirements of the Centre would be to entrust the monitoring and evaluation roles to such an institution. If it is indeed genuinely independent, its assessments would not be seen as politically motivated or biased, giving no reason for state governments to question the credibility of the process. It is important to keep in mind that most such schemes have meaningful impact only over long periods, so funding uncertainty constitutes a huge threat. Design and implementation could, over time, significantly improve if one dimension of uncertainty is removed by the assurance of independent evaluation.
