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Central Sector and Centrally Sponsored Schemes

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In India’s developmental plan exercise we have two types of schemes viz; central sector and centrally sponsored scheme. The nomenclature is derived from the pattern of funding and the modality for implementation.

Under Central sector schemes, it is 100% funded by the Union government and implemented by the Central Government machinery. Central sector schemes are mainly formulated on subjects from the Union List.In addition, the Central Ministries also implement some schemes directly in States/UTs which are called Central Sector Schemes but resources under these Schemes are not generally transferred to States.

Under Centrally Sponsored Scheme (CSS) a certain percentage of the funding is borne by the States in the ratio of 50:50, 70:30, 75:25 or 90:10 and the implementation is by the State Governments. Centrally Sponsored Schemes are formulated in subjects from the State List to encourage States to prioritise in areas that require more attention.Funds are routed either through consolidated fund of States and or are transferred directly to State/ District Level Autonomous Bodies/Implementing Agencies. As per the Baijal Committee Report, April, 1987, CSS have been defined as the schemes which are funded directly by Central Ministries/Departments and implemented by States or their agencies, irrespective of their pattern of financing, unless they fall under the Centre's sphere of responsibility i.e., the Union List.

Conceptually both CSS and Additional Central Assistance (ACA) Schemes have been passed by the Central Government to the State governments. The difference between the two has arisen because of the historical evolution and the way these are being budgeted and controlled and release of funds takes place. In case of CSS, the budgets are allocated under ministries concerned themselves and the entire process of release is also done by them.

States have however been raising concerns at various forums about lack of flexibility in CSS schemes, 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. To consider the concerns of all stakeholders, Planning Commission constituted a Sub-Committee in March 2011 for suggesting restructuring of CSS to enhance its flexibility and efficiency. The Committee submitted its report in September 2011. The National Development Council (NDC), while approving the 12th plan in its meeting held in December 2012 had also recommended building flexibility in the schemes to suit the requirements of the State Governments. Accordingly, the Finance Minister in his budget speech on February 28, 2013 had stated that Government is concerned about the proliferation of CSS and Additional Central Assistance (ACA) schemes and that each scheme would be reviewed and restructured.

In the Budget estimates of 2013-14, budgetary provisions were made for 137 CSS and 5 Scheme based Additional Central Assistance (ACA), excluding block grants.  On 20 June 2013, Union Cabinet decided to restructure the existing Centrally Sponsored Scheme (CSS)/ Additional Central Assistance (ACA) schemes in the Twelfth Five Year Plan into 66 schemes, including 17 Flagship programmes. To suit the requirements of the States, the Cabinet also approved that a scheme may have state specific guidelines which may be recommended by an Inter-Ministerial Committee constituted for this purpose. Besides, the financial assistance to the States in these schemes would be provided through the Consolidated Funds of the states. Further, to bring in desired flexibility, the Cabinet approved that 10% of the outlay of the Schemes be kept as flexi-funds. For each new CSS/ACA/Flagship scheme, at least 25 per cent of funds may be contributed by the General Category States and 10 percent of funds by the Special Category States including J&K, Himachal Pradesh and Uttarakhand. These arrangements were to come into force for the remaining years of the Twelfth Five Year Plan so as to help in optimum utilisation of resources.

Subsequently, the 14th Finance Commission (FFC) substantially enhanced the share of the States in the Central divisible pool from the current 32 % to 42 %, which is the biggest ever increase in vertical tax devolution. Such tax devolution is untied and can be spent as desired by the States. Consequent to this substantially higher devolution and resultant reduced fiscal space for the Center, the Finance Minister, Shri Arun Jaitley, while presenting the Union Budget 2015-16, said that many schemes on the State subjects were to be delinked from Central support.  However, he said that Centre decided to continue to contribute to such schemes representing national priorities, especially those targeted at poverty alleviation. Further, the schemes mandated by legal obligations and those backed by Cess collection would be fully provided for by the Central Government. Thus, Union Budget 2015-16 changed the contours of the central sector and centrally sponsored schemes as follows:

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