Centrally Sponsored Schemes (CSS)

Introduction:

Centrally sponsored schemes (CSS) are schemes operated with a view to achieve social objectives like poverty reduction, improving health services and raising food production. They are designed and funded by the central government and implemented by State governments who also contribute a fraction of the funds. A part of central contribution is in the form of grant and the other in the form of loan to States. CSS form a part of plan-expnditure.

CSSs ordinarily cover such subjects which are enumerated in State/concurrent list and are crucial for realising national development goals. While the schemes are implemented by the State Governments, their guidelines are framed by the concerned Central Ministries after stakeholder consultation including consultation with States. 

In addition to funds transferred through the Finance Commission award, the States access central plan funds through CSS and Central assistance to State Plans.

Need for CSS:

• These programmes essentially arise from the national objectives of inter-state parity and balance. 
• In the areas requiring national effort, the Centre cannot but intervene catalytically to infuse greater dynamism through CSS.
• To augment the financial resources of States with a view to achieve social objectives like poverty alleviation, improving health and education services, raising food production, etc and to contribute in national development.

Historical background:

Though CSS has been in vogue even before the advent of Five Year Plans, it was only from the Fourth Plan onwards that a separate classification of schemes as CSS was introduced.

On the termination of the World War II, the Central and the Provincial Governments had embarked on certain development projects which received Central Assistance in the form of what were known as post-war development grants. In the First Five Year Plan, many schemes which should have appropriately found place in the State sector were included in the Central sector because the exact distribution of their financial liability had not been decided upon. However, there was no clear criterion for distribution of Central Assistance to the States.

At the commencement of the Second Five Year Plan, majority of the schemes for which funds were provided in the Central sector and were implemented by the States outside their plan, were transferred to the State and included in the State Plans.

Criteria for classification as CSS:

Following criteria, given by various committees, should be adopted for the classification of Plan schemes as Centrally Sponsored:

(i) A limited number of important schemes to be implemented as matters of national policy such as rural development, poverty alleviation, education, human resource development;

(ii) Schemes such as those for specialized research and training which would benefit more than one State or might be of all-India significance;

(iii) Pilot projects for research and development;

(iv) It should have a regional or inter-state character.

(v) The programme or scheme should be in the nature of a pace setter or should relate to demonstration, survey or research.

While there is no such specific information that the guidelines of the schemes are very complex, from time to time, many State Governments have raised the issue of looking into the guidelines of the CSS. Their key concern is about providing of requisite flexibility to States to meet their requirements. Many states have pointed out that because of lack of flexibility, it is difficult to spend allocations in many of these schemes.

CSS and Zero Based Budgeting:

In order to contain the proliferation of CSS, the Planning Commission had by undertaking Zero Based Budgeting (ZBB) exercise in the beginning of the Tenth Five Year Plan recommended weeding out of 48 schemes, merger of 161 schemes into 53 schemes, and retaining the remaining 135 schemes, implying a carrying forward of 188 out of 344 CSS to the Tenth Plan.

Pattern:

Generally the pattern has been reduction in the number of schemes at the end of the Plan after a review and subsequent increase in new schemes during the course of the Plan.

The pattern of assistance for States under CSS varies from 100% to 65:35 as in Sarva Siksha Abhiyan.  Rapid increase in CSS and need for counterpart funds has led to pre-empting of resources of State Government for their Plan priorities. In several cases, it has also led to difficulties in accessing CSS funds due to shortage of counter-part funds with a State.

Restructuring of CSS:

To contain the proliferation of CSS, it is suggested that the CSS may be restructured into three categories: 

(a) Category-I – Flagship Schemes: These schemes have large outlays and the ability to make significant changes in the sectors to which these relate. These cover key areas of national importance like rural infrastructure, housing, employment, agriculture, education, health, power, irrigation etc. It is proper that these schemes be retained only after a review. These schemes should have a minimum Plan expenditure of Rs.10,000 crore over the five year Plan period.

(b) Category-II – Sub-Sectoral Schemes: The second category should be schemes relating to major Departments which have several subsectors. It will be useful to develop a sub-sectoral scheme for these Departments. Each sub-sector could have a core element which fully supports requirements of all States. The other component could be State specific which may vary in different States. Allocation of funds is lower than that of flagship schemes.

(c) Category-III – Umbrella Schemes: The third category of schemes should be those which cover comparatively smaller Departments. To make an impact in development process at the national level, it is necessary that the size of schemes commensurate with this requirement. In view of this, it will be useful that schemes with small outlays (upto Rs.300 crores) should be either weeded out or merged as part of a large Umbrella Scheme.

‘Flexi Funds’ in CSS:

CSS cover the entire country and thus cater to extremely diversified, demographic, geographical, economic and rural and urban needs. It is difficult to design ‘one size fits all’ schemes. It is, therefore, necessary that schemes to have a certain flexible component which may be used for developing specific sub-schemes by the State Government consistent with the objectives of the CSS. Therefore, all Category-II and III CSS must have 20% funds as ‘Flexi Funds’. In Flagship Schemes, which have large budgets outlay, these funds may be 10% of the annual outlay.

Monitoring and Evaluation

The CSS have been criticized on the ground of poor ownership of the States, inadequate monitoring and evaluation of programmes. In view of the fact that the Central Ministries have a large number of CSS, there is generally very little concurrent evaluation. It has, therefore, not been possible to make mid-course changes in the scheme so as to meet the gaps in the schemes.

Concurrent evaluation would enable such changes in the scheme which can improve its effectiveness. Such a monitoring system also ensures better performance from the State functionaries. In a number of these, this has been lacking. While in a number other CSS provision for evaluation exists, it has not been that effective. Independent evaluations in MNREGA have helped development of new guidelines and mid-course corrections of the programme. It is important that review and monitoring be mandatorily carried out by independent evaluation organizations for all CSS.

An important area of evaluation is social audit. This has been taken up in MGNREGA. It will be useful to expand its scope in other schemes, particularly which are being implemented at grassroots level. 

Funds Allocation to States

Funds under the CSS are allocated by the concerned Ministries. This is being done in accordance with the norms evolved by the Ministry and utilization and pace of funds. There is a need to ensure predictability for the State resources based on certain objective norms. Since inter-State allocations will depend on the nature of the scheme no Central formula can be suggested. The broad approach, however, should be based on identifying the needs of the State which the scheme aims to meet and the total resources available under the CSS.

There will be increase in the allocation for certain scheme from year to year. Such increase should be preferably given to those States which have taken steps in allocating larger resources of their own in the concerned CSS field.

Transfer of Funds to States

The transfer of funds to the State under CSS and ACA is being done through State budgets, independent societies under the control of the State Governments and at the District level with organizations under the State Governments. It has, however, been criticized on the ground that it has diluted the responsibility of the State Governments for effective utilization of these funds, as these are not being routed through the State budgets. It has also been not possible to have an effective central monitoring and evaluation system to be developed at a national level due to problem in CSS budget heads. For the same schemes different State budgets have different account codes. Given the variety of system of administration, the routing of funds from independent agencies is also creating problems in assessing the actual availability at the grassroots level. The current transfer system has evolved over a period of years to ensure that funds reach at the operating grassroots level faster. There is, however, also a need now to ensure full financial accountability of the State Government. The procedure for transfer of funds to the States should be reformed. Efforts must be made to gradually move over to transfers through State budgets.

Sharing of Best Practices

States are implementing various Centrally Sponsored Schemes. It is important that the experiences are shared with other so that benefits of federal structure flow to all constituent. The mapping of best practices and lessons learnt would assist in improvement in design, implementation and policy. For this there is need to have an interactive website and authenticated data base.

Criticisms of/difficulties in CSS:

• CSS does not take into account adequately the need for flexibility in physical and financial norms of projects being built or feasible under CSS in cognizance of divergence amongst States in geographic condition, level of economic development, nature of gaps in physical infrastructure and demography.
• The monitoring by Ministries and independent evaluation of schemes is generally poor in CSS due to gaps in design of scheme, lack of ownership amongst States. No emphasis is being laid on outcomes or impact of these schemes through independent assessment/evaluation.
• Accounting process is different in different States for same CSS scheme. It is, therefore, not possible to have an effective Central monitoring and accounting system.
• The issues of proliferation of CSS, top down approach, provision of flexibility to States to mould schemes according to local requirements, flow of funds, accountability, enforceability, implementation, involvement of PRIs etc. continue to be relevant today.
• It is clear from the government data that the process of zero-based budgeting has not succeeded in limiting the number of schemes. As new areas are taken up, additional schemes are approved.
• States have been raising concerns at various forums about adverse implication of counterpart funding requirement of CSS on State finances and questionable utility of operating large number of CSS with thinly spread resources at the field level.
• States criticize CSS saying that increasingly large part of it is in the form of loans.
• Centre employs top-down approach while formulating a CSS instead of bottom-up approach.
• CSS has adverse implication for the problem of human resource shortage in States. In almost all CSS, the States are not allowed to use the Central funds (i.e. the Plan funds) for recruiting new staff on regular/permanent cadre; States can use the Salary-related funds in the CSS only for contractual staff who can be laid off easily. Given that public expenditure through CSS has become the major source of new interventions/provisioning by the government in most development sectors in the country, the shortage of regular/permanent cadre State Government staff in development sectors has aggravated over the last decade. What is disturbing is the fact that while such growing shortage of qualified staff in the States has constrained their capacity to utilize Central funds in the CSS, the same inability of the States to fully utilize Central funds is then cited as a justification of the low level of budgetary allocations for the development sectors in the country.

Various recommendations:

• Several CSS with small outlays do not achieve the objective of making an impact across the States. Such schemes are, therefore, not suitable as a CSS and need to be implemented by the States, unless required as part of convergence process of a broader scheme at the Centre. 44% of the total CSS have an average annual outlay of less than Rs.100 crore. B.K. Chaturvedi committee suggested that these schemes should either be weeded out or merged for convergence with larger sectoral schemes or be transferred to States, who can then continue with these schemes based on their requirements.
• Several CSS aim to address issues which are important nationally, but the ground conditions amongst States vary widely. It is recommended that these schemes be restructured into ACA schemes in which, apart from a core element, there is flexibility to the States to undertake activities depending on the developmental gaps in that area. There does not appear to be any major distinction between ACA based schemes and CSS except that ACA forms part of State Plan size while CSS do not.
• Distribution of CSS funds amongst different States should be based on transparent notified guidelines.
• The normal Central assistance to States should not be reduced to below 10% of GBS to enable States to have adequate flexible untied resources for their Plan.
• All new CSS (except new Flagship Schemes) should be a part or subcomponent of Sub-Sectoral Schemes or Umbrella Schemes and must be 100% centrally funded. It should have no conditionality for counter-part funds. However, other conditions for efficient use of funds and meeting the objectives of the scheme must be there.
• To enable State Governments to meet their special needs, flexibility in the CSS should be provided in its design. 20% of budget allocation in all the CSS (10% in Flagship Schemes) to be called ‘Flexi Funds’ should be earmarked in each scheme for this purpose. Such funds should be used by the State Governments on sub-schemes or components of CSS for which guidelines should be notified by the concerned Ministries.
• Procedure for transfer of funds to the States should be reformed to ensure full accountability of States. Efforts must be made to gradually move over to transfers through the State budgets. Since currently transfers are taking place directly at District level or to other independent bodies or societies, there may be difficulties in making wholesale changes to the transfer procedures. Transfer mechanism should hence be worked out, so that over a period of Twelfth Plan all transfers are routed through State Governments and not directly to the independent societies at the State or District level.
• States are implementing various Centrally Sponsored Schemes. It is important that the experiences be shared with other so that benefits of federal structure flow to all constituent. For this there is need to have an interactive website and authenticated data base.
• There should be monitoring and evaluation by Ministry and Independent Evaluation Office of all CSS on a regular basis. Such monitoring and concurrent evaluation reports should be placed on the respective Ministry’s website and should form the basis of any mid-course correction. Absence of such evaluation should be viewed adversely which will affect release of funds to the Ministry. Further, reviews of financial norms of all centrally sponsored schemes should be carried out once in every two years.
• Schemes other than those having high national importance could be considered for transfer to the State Plans. As for the new schemes, it is recommended that they should be introduced with the approval of the Planning Commission (or its successor) and in consultation with States.
• There should be no mid-plan introduction of schemes. In other words, all the schemes to be implemented in a given Plan period should have been included in the Five Year Plan. In exceptional cases, new schemes may be introduced to meet any emergent situation or to give effect to a new thrust in national policy (e.g. New Education Policy) but these should, as far as possible, be 100 per cent centrally funded.
• There should be prior consultation with the States not only sectoral but also with Finance and Planning Departments before introduction of new schemes and financial arrangements should be carefully worked out if the schemes are not 100 per cent centrally funded.
• Zero Based Budgeting (ZBB) should be employed efficiently and effectively at least once every five years in consultation with States to rationalize the number and areas of CSS.
• Terminal dates, targeted outcomes and outcome measurement strategy for all existing CSS should be notified. All new CSS should have start and closure dates, and in the absence of a specified date of closure, would come to a close at the end of that Plan period.
• All CSS funds should be routed through the State Budget. In the interests of practicality, States should make provision in anticipation of the Central releases. The transfer of funds is currently being done through several ways - directly transferred at district-level, given to the State Government which in turn transfer the funds to district-level and Panchayati Raj Institutions (PRIs). This system of transfers dilutes State Government’s accountability on use of funds transferred directly outside the State budget. The accountability of the State Government under the present system has to be strengthened. Transfers should be such that funds to the lowest utilizing organizational level reach quickly.
• Design gaps of CSS need to be plugged through proper and efficient designing of CSS so as to achieve effective their implementation.
  State governments have emphasized the need to reduce the number of CSS as:

1. putting a cap on CSS at 1/6th or 1/7th of Central Plan assistance, 

2. transferring a number of identified schemes to State Governments, 

3. consultation with States, particularly if the schemes are not 100% Central funded and 

4. transferring the entire CSS funds to the States without any restrictions

5. 100% funding of CSS with no counter-part State funds and

6. Flexibility to States in the implementation of these schemes.

• The proportion of grant component in CSS funds should be raised at the cost of the loan component.

Actions taken:

• The Central Plan Scheme Monitoring System (CPSMS) has been initiated by the Controller General of Accounts to serve as a comprehensive MIS and decision support system for monitoring of the Plan schemes of the Government. CPSMS seeks to obtain real time expenditure information for central schemes for which funds are transferred to the consolidated funds of the States. It also has the challenging task of tracking the fund movement at each successive stage starting with the initial release from the Centre till the money actually reaches the ultimate beneficiaries. On full implementation, CPSMS is expected to provide customized information of fund deployment and utilization vertically under each scheme to programme managers and horizontally across schemes in one geographic area. Inputs provided by the system would be vital for programme management and policy planning. The information on fund utilization should also be placed in the public domain for greater public awareness, public participation in the policy making and execution and toward enhanced transparency in Government operations. This will ensure that no new CSS is introduced without uniform budget code from the CGA.
• The government has approved restructuring of the existing CSS/ACA (Additional Central Assistance) Schemes in the Twelfth Five-Year Plan into 66 Schemes, including Flagship Programmes.
• The Government/Cabinet, has also inter-alia approved following for improving their efficiency.

(i) At least 10% of outlay of CSS be kept as flexi fund which may be used for funding innovations or taking up the activities/projects which even though not strictly as per the guidelines of the scheme, serve the broad objective of a scheme.

(ii) A provision for introduction of State specific guidelines in a CSS has been provided. For this an Inter-Ministerial Committee with representative of the State Government and the Administrative Ministries concerned has been constituted to consider the suggestions of the State Governments for introduction of State specific guidelines for implementation of the schemes. These two measures are expected to provide flexibility in implementing the scheme and would improve their efficiency.

(iii) For each new CSS/ACA/Flagship scheme, at least 25% of funds may be contributed by the General Category States and 10% fund by the Special Category States including States of J&K, Himachal Pradesh and Uttarakhand.

(iv) The Budget provisions of these schemes would be provided to the Administrative Ministry so that central fund would flow to the States through Consolidated Fund of States. 

• Evaluation of various CSS and other schemes is being carried out by an Independent Evaluation Office set up in 2010 for the same purpose.