A review of centrally sponsored schemes
There are too many Centrally Sponsored Schemes. There can be no quarrel over the fact that this makes
public expenditure inefficient and impossible to monitor
I have written about Centrally Sponsored Schemes (CSS-s) in the past. But given the Union Budget and 15th Finance Commission’s report, the point is worth pursuing. In addition to the National Health Mission (NHM), the Budget announced a new CSS, the PM AtmaNirbhar Swasth Bharat Yojana. However, the speech also said, “On the recommendation of the Fifteenth Finance Commission, we have undertaken a detailed exercise to rationalise and bring down the number of Centrally Sponsored Schemes. This will enable consolidation of outlays for better impact.” A quote from the 15th Finance Commission’s (FC) report should follow, to explain what was said there.
“Concerns arise because, even after some recent consolidation, India’s specific-purpose transfers have been channelled through a large number of discretionary cost-sharing Centrally sponsored schemes (CSS) and non-matching Central sector schemes. They are not generally linked to outcomes, and are input- or process-based, and give rise to the usual concerns associated with such conditionalities. The concerns result, in part, from the large number of schemes, their concurrence with state responsibilities and their burdensome matching requirements, especially for states with lower fiscal and institutional capacity.” There are several distinct points. (1) There are too many CSS-s.
From FC again, “Till recently, there seemed to be confusion about the number of existing CSS, indicating the complexity of the entire structure. The Department of Expenditure, Ministry of Finance, has recently drawn up a list of 131 CSSs. The Union Budget 2020-21 shows that 15 of the 30 umbrella CSS account for about 90% of the total allocation under CSS. Many umbrella schemes have, within them, a number of small schemes, some of them with negligible allocations.” Most people are familiar with restructuring of CSS-s done in 2016-17, following recommendations of a group of chief ministers. But this was restructuring, not rationalisation.
In other words, schemes were clubbed under heads of umbrella schemes, as sub-schemes. The FC mentions a list of 131 if all schemes are counted. On the basis of Budget papers in successive Budgets, the figure is more like 165. There can be no quarrel that this is excessive and makes public expenditure inefficient and impossible to monitor.
(2) “Further, the medium-term framework for CSS and their sunset dates have been made co-terminus with Finance Commission cycles.” Therefore, with the 15th FC report having been submitted, this is the right time to review CSS-s.
(3) “It is important to gradually stop the funding for those CSS and their subcomponents which have either outlived their utility or have insignificant budgetary outlays not commensurate to a national programme. There should also be a minimum threshold funding size for the approval of a CSS. There are two pre-conditions for carrying out this task. The first is to fix a threshold amount of annual appropriation below which the funding for a CSS-s may be stopped. Below the stipulated threshold, the administrating department should justify the need for the continuity of the scheme.” Notice that FC has two separate arguments here.
First, if a scheme has little funding, below a threshold, it has limited utility and does not deserve to be a national programme. That argument applies to state-level schemes too, which states can fund out of their own resources, independent of the Union government. What’s an appropriate threshold? In 2011, the B.K. Chaturvedi Committee, set up to recommend rationalisation of CSS-s, suggested an annual expenditure threshold of Rs 100 crore. But the Chaturvedi Committee also made references to an earlier Planning Commission Committee, the Arvind Varma Committee. That had recommended an annual threshold of Rs 300 crores. With inflation, that threshold should be higher now, perhaps Rs 500 crore.
(4) One feels the FC has been a bit too polite and diplomatic. Below a threshold, regardless of what a department feels, there are no reasons to continue with a CSS. Else, because every department has a proprietary view about every scheme it administers, there is a reluctance to let go, which is the primary reason behind the continued existence of so many CSS-s. But yes, there needs to be a ZBB (zero-based budgeting) of all CSS-s. Since some CSS-s have legislative backing and since state governments are involved, who does the ZBB exercise and how does this gain political acceptance?
(5) There is a Seventh Schedule to the Constitution. Shouldn’t we treat it as axiomatic that there shouldn’t be a CSS in something on the State List? Devolution received by states through FC is meant for such items. If an item is on the Union List, shouldn’t it be a Central Sector scheme, with no matching grant from states? If it is an item on the Concurrent List, what should the formula be for matching? How can flexibility be given to states, such as for splicing a CSS with a state-level scheme? How does one measure the impact of such CSS-s, beyond mechanical audit requirements? There are possible lessons from health, which is squarely in the State List, but on which there are CSS-s.
Any ZBB of CSS-s involves prioritisation of public resources and deciding at what level these must be spent. While there can be a debate about which sector should claim public resources, most people will mention health, though defence, internal security, education and infrastructure will also be listed. With health squarely in the state list, a review of CSS-s implicitly indicates a review of the Seventh Schedule, inherited from the colonial Government of India Act of 1935.
Bibek Debroy (Tweets @bibekdebroy)
Chairman, Economic Advisory Council to the PM. Views are personal