States struggle to effectively utilize Centrally Sponsored Scheme funds, says PRS

India’s PRS document shows that Himachal Pradesh, Uttarakhand, the Northeast, and Sikkim receive higher per capita allocations for CSS.

| Updated: 04 December, 2024 3:23 pm IST

NEW DELHI: According to a document by India’s PRS, states like Himachal Pradesh, Uttarakhand, the Seven Sisters of the Northeast, and Sikkim receive significantly higher per capita allocations for Centrally Sponsored Schemes (CSS) compared to other regions.

These states, facing unique geographical and infrastructural challenges, are allocated between Rs 4,000 and Rs 22,000 per person. In contrast, states like Bihar and Uttar Pradesh receive around Rs 1,600 per capita, while Telangana and Tamil Nadu receive over Rs 2,500. Wealthier states such as Gujarat and Haryana, however, receive around Rs 1,200 to Rs 1,400 per capita.

This allocation pattern raises questions about the effectiveness of the centrally sponsored model, especially when these schemes aim to address key areas like poverty alleviation, social inclusion, rural connectivity, and drinking water. However, challenges remain in ensuring that all states can effectively utilize the funds allocated for these schemes.

The 15th Finance Commission, as noted in the PRS document, observed that states with lower fiscal and institutional capacity ( states that face challenges in generating sufficient revenue ) may face difficulty in contributing their share of the funding in implementing the schemes.

The Commission also pointed out that the allocation of grants is not solely based on a state’s need but also on its ability to meet specific conditions and follow certain rules to access central funds.

In 2015, a Committee of Chief Ministers recommended reducing the number of CSS schemes to improve their impact and visibility. As a result, the number of schemes was reduced from 130 to 65 in the Union Budget for 2022-23, focusing on core areas such as poverty elimination and rural development. Despite this reduction, several new schemes have been introduced, leading to a total of 74 CSS schemes for the 2024-25 budget, seven of which account for nearly 70% of the total expenditure.

The Finance Commission has recommended that CSS allocations move towards equal per capita transfers, linked with output-based conditions, to promote equitable development.

CSS, which account for about 20% of overall central transfers to states, are intended to standardize public services, particularly in education, health, and employment, and to support development in underdeveloped regions. However, the current allocation model continues to raise concerns about achieving balanced progress across all states.