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Insights into Editorial: Unshackling the states from central schemes + MINDMAPS on Issues

Insights into Editorial: Unshackling the states from central schemes + MINDMAPS on Issues

02 December 2015

Over the years, proliferation of the centrally sponsored schemes (CSS) has greatly curbed the autonomy of the state governments. The greater the devolution through these one-size-fits-all CSS, the lesser is the untied fund available to the state governments.

  • Hence, to examine the current centrally sponsored schemes (CSS) and recommend their suitable rationalization, a sub-group was constituted under the aegis of NITI Aayog.
  • The sub-group, composed of chief ministers, has offered the Union government an institutional framework to further consolidate the constructive trends in fiscal devolution under the new emblem of cooperative federalism.
  • Even, the Fourteenth Finance Commission (FFC) had brought in significant changes in state-centre finances by increasing the devolution to states from 32% to 42% of the net Union tax receipts.

Important recommendations made by the sub-group:

  • Reduce the number of centrally sponsored schemes (CSS) down to 30 from 50 in 2015-16.
  • Divide CSS into core schemes and optional schemes. The core schemes will require mandatory implementation by the states, and the centre will fund 100% share for the Union territories, 90% for the eight north-eastern (NE) and three Himalayan states, and 60% for the rest of the states. The corresponding figures for the optional schemes are 100%, 80% and 50%, respectively.
  • States should be given the flexibility to choose optional schemes they want to implement.
  • The fund meant for the scheme opted out by any state can be used in other schemes. The states should be made free to deselect some components of a scheme they are implementing.
  • Increase the flexi-funds—meant to provide greater flexibility to spend on diverse requirements under the overall objective of the scheme—from 10% to 25%.

Position on special category states:

The special category states were disproportionate beneficiaries of the block grants—including Normal Central Assistance, one-time Additional Central Assistance, Special Central Assistance and Special Plan Assistance—which have now been subsumed into the increased fourteenth finance commission devolutions.

  • It should be noted here that the sub-group, in its report, has no where used the phrase “special category states”. It has instead used the phrase “Eight North Eastern states and three Himalayan states”. This might have important implications, if this report is accepted. This may bring a much-needed end to the practice of states queuing up for special category status.

Why states are not happy with CSS?

The Union Budget allocates about 59% of the Central Plan funds as Central Plan Assistance (CPA) to the States and the balance 41% is allocated in the form of CSS. The straight-jacketed conditionalities of the CSS do not allow any flexibility to meet local needs which result in the States either conforming to a uniform eligibility and strategic posture, or losing out on resource allocation.

How can the financial position of states be improved?

  • Devolution of funds should be done leaving space for local initiatives.
  • The States should be given greater liberty in opting for strategies to achieve the national goals within the given time-frame.
  • The States must be allowed greater flexibility to raise funds from the market to finance their projects.

The states have an important role to play in terms of both economic growth as well as poverty reduction. It should also be recognized that the States are not homogenous and hence they should be allowed to collectively deliberate and do the groundwork for defining the national goals, the sectoral targets and the achievable indicators. The constitution of the sub-group was an excellent example of involving the states in the decision-making process. However, much more work still needs to be done in order to realize the true ideals of cooperative federalism.

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