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Business News/ Opinion / Unshackling centrally sponsored schemes

Unshackling centrally sponsored schemes

States should take up the responsibility of running social sector schemes

Illustration: Jayachandran/Mint Premium
Illustration: Jayachandran/Mint

In a country as diverse as India, economic development should follow the dictum of think locally, act locally. Instead, since Independence, think centrally—and even worse—act unilaterally has been a watchword for governments of all hues, including the ones professing federalism. That may, finally, be about to change.

Last week, a sub-group of chief ministers tasked with looking at various schemes launched by the Union government agreed on a drastic pruning in their number. The report of these chief ministers is expected this month. But the outlines of their recommendations are already known. First, a reduction in the number of centrally sponsored schemes, or CSS, has been agreed on. Second, these schemes are to be divided into core and optional schemes. Core schemes should be backed by Parliamentary legislation. Further, core schemes should have a funding pattern of 60:40 (60% of the money from the Centre and 40% from the state government). The exception is to be in the case of special category states—in the country’s northeast and the hill states—where it will be in the 90:10 ratio.

There are many reasons why these schemes did not work but at the core of the failures are three interlinked factors. One, it makes little sense for the Union government to provide goods and services that are best provided by state governments. In sectors such as agriculture, education and health, among others, knowledge of local conditions is important for the success of any scheme or project. Crafting these schemes while sitting in Delhi is of no use.

Two, estimating the money required for the success of these projects requires a great degree of coordination with state governments. Simply asking for inputs on a file and then allocating money on the basis of unworkable formulae is the best way to sink a scheme. One does not need great imagination to understand why schemes with an India-wide allocation of less than 500 crore don’t make any difference on the ground.

The third reason for the failure reflects a faulty mindset. CSS came into being in the late 1960s when India was a weak and underdeveloped economy. State governments did not have the financial resources and the expertise to run ambitious schemes. At that time, there was a rationale to these schemes: matters of national policy such as family planning and resettlement of landless agricultural labourers required the intervention of the Union government. Since then, state governments have acquired a degree of expertise—even if it is wanting in many respects—and have financial resources for what they need to do.

Yet, in every budget there is a schemes mania as if without announcing these schemes India will not develop. No one bothers to ask what happens to schemes such as Technology Mission on Cotton, National Bamboo Mission and host of other white elephants. While these projects have high sounding names, in the end all they do is dole out some money and then wind up.

What the meeting of the NITI Aayog suggests is that chief ministers and the Union government have realized the unworkability of such schemes. The sticking point, as always, is the combination of states’ demand for flexibility in making/implementing schemes and the Union government picking up the tab. This is not an issue any more. After the recommendations of the 14th Finance Commission—which gave an unprecedented share of tax revenues to the states—state governments have the resources they need to do what they want to.

In line with greater devolution of resources, a drastic pruning of CSS is essential now. Perhaps it is time to revisit the original rationale for launching CSS: the Union government funding and implementing schemes that reflect national priorities and goals. These are largely in areas such as the power and infrastructure sectors. Projects in these areas are capital-intensive and require coordination among a number of states, a role the Union government is capable of performing.

A number of steps need to be taken in moving to a future where states pick up the responsibility of economic development in their jurisdictions. Almost all central plans—with the exception of a handful—should be wound up quickly. The money saved from these schemes should be handed over to the states, in consultation with NITI Aayog and individual state governments. Under no circumstances should the Union government fund the so-called flagship schemes in the social sector: that should be the exclusive preserve of state governments—financially and administratively. Along with freedom, states need to understand, comes responsibility.

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Published: 30 Jun 2015, 03:49 PM IST
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