November 2, 2014
Source: Bin im Garten/Wikimedia Commons
With the recommendations of BK Chaturvedi committee report getting approval from the NDA government, we can expect decentralisation of Centrally-funded schemes
The Centre-State relations have always been under strain especially when opposite political parties are heading the two governments. Most of the bickering is either due to fund allocation or matters of jurisdiction. It’s the subjects under the Concurrent List which provide much fodder for conflict as they invite overlapping of powers. These items require an overhauling policy framework defining service delivery, availability of adequate funds and strategies to reach the masses, thus prompting the Centre to play the lead role. Classic example in this case is Education. As far as allocation and release of funds is concerned, it may soon change with the new Union government working on recommendations by the B K Chaturvedi committee to restructure Centrally-sponsored schemes and ensure more flexibility to States.
Why States need financial autonomy 
To begin with, it is important to understand the strength of resources with the States. The revenue of a State is complemented by resources flowing from the Centre. There is a proportion of the net tax collection that is distributed to the States. In addition to this, States also receive assistance for their plan schemes and the Centrally-sponsored schemes.
By the end of the third five-year plan in 1966, it was noted that the development schemes sponsored by the Centre were too rigid and did not match the situation in the States. A sub-committee thence appointed by the National Development Council in 1967 called for reducing the number of Centre assisted schemes to minimum. However, even after the 73rd amendment was passed decentralising 29 subjects for jurisdiction by the Panchayats, the share of Centrally-sponsored schemes to the total number of schemes shot to 70 per cent from the 30 per cent in late 1980s.
The issue of Central assistance to States and flexibility to the States in implementation persisted. States like Jharkhand, Bihar and others were not capable of pooling in the share required from them to implement any programme. Therefore, it was concluded that a fixed sharing pattern between Centre and the States may not ensure effective implementation. For instance, States were required to pool in 25 per cent share in funds for Kasturba Gandhi Balika Vidyalaya scheme when it was introduced in 2004. Evidently, inability of some States in pooling their share of funds led to difficulties in accessing the Central funds.
By flexibility, the larger opinion from the States is that they must be allowed to decide on the provisioning of money available at their disposal. This does become relevant in the context of States being in a better position to assess the needs and priorities from a micro perspective since ‘one shoe fits all’ approach can’t work in a country like India with diverse social set ups. 
Without this flexibility, the adherence to Centre’s norms and guidelines also renders the whole programme invalid or irrelevant. For instance, Ashram schools were set up as residential schooling facilities in tribal areas to improve access to primary, middle and secondary education. Though tribal culture has taught the children the value of freedom, these schools restrict their movement even within the premises. This being a prime factor leading to dropout cases, needs to be addressed within a specific context. In a study it was recommended that tribal children attend regular day school for the first few years, until they get accustomed to routine and restrictions for admission into Ashram schools. This again, may not suit all the States. Were the States allowed to modify or rework on specific guidelines, schemes could possibly have a better impact.
Alongside flexibility, accountability of the States has also been a point of concern as it has been observed that there is no sense of ownership among the States for the Centrally-sponsored schemes. That in effect, translates to less interest or less favourable intention in implementing them. One of the crucial reasons for this is the transfer of money from the Centre to the District/State/Regional and also independent implementing agencies. Accounting followed therefore has separate codes although money is being spent for the same scheme.  This lack of ownership has further exacerbated the poor quality in the monitoring and evaluation of these Schemes.
How will the system change
The B K Chaturvedi committee appointed by the Planning Commission to examine the restructuring of Centrally-sponsored schemes made the following recommendations in its draft report submitted in September 2011.
  • There were 147 Centrally-sponsored schemes accounting for Rs 1,80,389 crores in 2011-2012. Observing that 44 per cent of these schemes have an average outlay of less than Rs 100 crore, the Committee had recommended that schemes with small outlays that have not achieved the objective can be either done away with, merged with other schemes or transferred to the States. The resultant reduction in the number of schemes will make it easier to monitor and evaluate.
  • The Committee had proposed a mechanism for restructuring the existing 147 schemes into three categories:
  • Flagship schemes – concerning interventions in priority sectors like education, health, agriculture, etc.
  • Sub-sectoral schemes – concerning developmental problems/sub sectors of the priority sectors.
  • Sectoral Umbrella Schemes – concerning themes that bridge the sectoral gaps to ensure effective implementation of Plan expenditure.
  • Calling in for transparent guidelines for distribution of funds among the States, the committee proposes that all new schemes other than the flagship schemes be 100 per cent Centrally-funded. Counterpart funds from the States for flagship schemes must be restricted to 25 per cent (10 per cent in the case of north eastern states).
  • To ensure flexibility to the States in the very designing of the scheme, 20 per cent of the funds from all the Centrally-sponsored schemes must be kept as ‘flexi funds’, which can then be utilised in addressing the overall objective of the scheme. 
  • Complementing the flexibility is the suggestion to revise financial norms every two years to adjust to inflation. For instance, cost of notebooks or cooking fuel has increased manifold in the last decade. If the cost of these items in the budgetary guidelines are fixed and not subject to change, States will be under pressure to pool in extra resources. They may then contain the number of beneficiaries or worse lead to acquisition of less expensive utilities both of which will impact the effectiveness in the reach of the scheme.
  • Transfer of money to the States must be reorganised and done through the States’ Consolidated Fund instead of transferring it directly to the implementing agencies. This, in addition to simplifying the accounting procedures, ensures accountability of the States.
  • In addition to the monitoring of schemes taken up the pertinent Ministries, independent evaluations must also be allowed by professional institutions/experts. An interactive website backed by an authenticated data base shall be introduced to sharing of best practices for collective learning.
In June 2013, the Union Cabinet approved the restructuring of 147 Centrally-sponsored schemes into 66, with 17 classified as flagship schemes, as opined by the Committee. Further, the notion of routing funds through Consolidated Fund of the States was also approved. Allowing for State-specific guidelines in the Centrally-sponsored schemes to accommodate local concerns, the Union Cabinet also approved the stipulated ratio of 25 per cent contribution from the States (10 per cent in case of special category States). The recommendation in flexi funds was also through, but with the proportion limited to 10 per cent of the total budget of the schemes, against the recommended 20 per cent.
The new NDA government also put its stamp of approval on these decisions by including them in its first Union budget this year. However, with dismantling of the Planning Commission of India, a mechanism is yet to be worked out on how to implement these steps. Nevertheless, as they say, “Well begun is half done.” Here’s hoping for greater decentralisation.
Centrally Sponsored Schemes’, Joyita Ghose, 2013.10.04.

Shanmuga is Research Associate at Centre for Budget and Policy Studies, Bangalore.