MAY 20, 2019

By TIOL Edit Team

CENTRALLY Sponsored Schemes (CSS) have come under fresh gaze of both the 15th Finance Commission (XVFC) and NITI Aayog.

This should be welcomed for three main reasons: 1) to maintain fiscal discipline at the Centre & at the States; 2) To promote healthy Centre-State relationship that impacts economic growth and 3) to factor in the promises listed in Lok Sabha poll manifesto of the party that wins absolute majority. This might apply to common minimum programme drafted by a post-poll alliance that forms the new Government at the Centre.

"There is an excellent opportunity for rationalization and simplification" of CSS, says XVFC Chairman, N.K. Singh. He made this observation at a press conference convened after a two-day (8-9th May) interface with bankers & economists at Mumbai.

According to XVFC release, The Centre spends 3.5 lakh crore rupees per annum on CSS. Past attempts at rationalizing these schemes have met with modest success.

CSS reforms have become a periodic, 'work in progress' for decades beginning with 1960s. This is because of the political compulsions of the Union Government. In its desire to return back to power, the ruling party resorts to launch of new schemes. It restructures and renames existing ones. It replaces an existing one with new one.

This leads to proliferation of both central (which are 100-funded by Centre) and CSS schemes which are financed, both by the Centre and States. Over a period, CSS become unmanageable and weakens fiscal management. This, in turn, leads to fresh attempt to review and rationalize existing schemes.

The rationalization often results in winding up of some existing schemes, thereby exposing States to the brunt of public displeasure resulting from CSS closures.

This fiscal mismanagement has happened in spite of repeated pleas by Chief ministers to reduce the number of CSS to only core sectors. States want the Centre to instead enhance transfer of funds to empower them to launch schemes tailored to their requirements.

The number of CSS increased from 190 at the end of Fifth Plan to a record 360 at the end of Ninth Plan. In 2002, Planning Commission reviewed all CSS with zero-budgeting technique. This led to a decision to prune them down to 194 CSS. The number was subsequently brought down further to 137 CSS. In 2013-14, the number was reduced to 66.

In August 2016, Modi Government reduced this number to 28 by merging some and by giving States the choice to fund some CSS wholly as their own schemes or scrap them. Of the 28, six were classified as core of the core (COTC) schemes, 20 as core schemes and remaining two as optional schemes.

Among the six COTC schemes is Mahatma Gandhi National Rural Employment Guarantee Scheme. The existing funding pattern of these schemes was retained.

The funding pattern for 20 core schemes was revised to 60 % by centre and 40% by States. For the remaining 2 CSS, funding pattern was changed to 50-50.

In 2017-18, NDA Government restructured Rashtriya Gram Swaraj Abhiyan (RGSA). In 2018-19, it replaced well-established Rashtriya Swasthya Bima Yojana (RSBY) with Pradhan Mantri Jan Arogya Yojana with an eye on polls.

And in the interim budget for 2019-20, it introduced Pradhan Mantri Kisan Samman Nidhi (PM-KISAN) to augment farmer's income. It is a central scheme and is thus is 100% funded by the Centre. It provides for direct transfer of Rs 6000 in account of small and marginal farmers.

CSS restructuring or replacement or launch of central schemes affirm the politics of development driven by urge to return to the power at the Centre. Thus, Centre is both a problem creator and solution provider in CSS domain.

A XVFC release says that the lifecycle of CSSs was earlier coterminous with that of the Five Year Plans. They were thus subjected to mid-term appraisal of the Plan. As there are no such Plans, and hence no mid-term appraisal, the Centre decided that it would now make the lifecycle of all CSSs coterminous with that of every Finance Commission.

The current financial year is the last year of the existing CSSs, before which they will move to the new cycle which will kick in as a result of its recommendations.

NITI Aayog, the successor of Planning Commission, is aware of these intricacies. It is thus embarking on evaluation of all CSS through a slew of consultancy tenders invited earlier this month.

NITI says Government has assigned it the task of facilitating independent third-party evaluation of all the 28 CSS. The findings of the evaluation studies would be made available to "appropriate authorities for determining the rationalization of the schemes".

XVFC is also waiting for final memorandum of the Union Government. The memorandum might get delayed if a non-BJP Government is formed. It would obviously make its recommendations on CSS and other formats of non-plan transfer of resources from the Centre to States after reading memoranda of all Governments.

XVFC is required to submit its report to Government on 30th October, whereas the new Government is likely to be formed before May-end. It would need at least a month to figure out how to weave in its welfare promises in existing CSS or launch new ones. It would also have to decide whether it needs to launch any new central scheme to honour poll promises.

The future course of development and welfare expenditure is uncertain as of now.

To optimize expenditure efficiency in this arena, the ruling party should exercise self-discipline. It should refrain from launching any new CSS without prior consultation with the States. Same approach should also be applied to restructuring the existing schemes. Certainty and stability of CSS is vital for achieving best outcomes on the Vikas front.

The buck for periodic CSS mess and resulting fiscal strain stops at the door of the Central Government.