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Intensive Mains Program for IAS 2026
13th June 2025 (9 Topics)

Scheme Rationalisation

Context

The Union Ministry of Finance mandated that all Central and Centrally Sponsored Schemes (CSSs) be subjected to third-party evaluation before seeking extension beyond March 31, 2026. This marks a significant shift towards performance-based governance, fiscal discipline, and evidence-based policymaking in India’s public finance management.

Objectives of the Circular

  • Ensure efficient utilization of public funds
  • Encourage accountability and transparency in scheme implementation
  • Link budgetary allocation with performance outcomes
  • Rationalize schemes by weeding out ineffective programs
  • Introduce financial limits to prevent uncontrolled expansion of public expenditure

Key Provisions of the Circular

  • Sunset Clause
    • Every scheme must have a pre-defined end date.
    • Reappraisal required before continuation beyond 2026.
  • Evaluation-Based Continuation
    • Third-party evaluation for Central Sector Schemes
    • NITI Aayog appraisal for CSSs
    • Continuation allowed only upon positive outcome assessment
  • Expenditure Cap
    • Total projected outlay for the 16th Finance Commission cycle should not exceed 5 times the average expenditure of 2021–2025.
  • Flexibility and Reallocation
    • Ministries can reallocate funds from underperforming schemes to better-performing ones with justification.
  • Fund-Limited Nature
    • All schemes will operate within pre-approved fund ceilings.
  • Impact on Demand-Driven Schemes (e.g., MGNREGS)
    • Outlays will be linked to projected beneficiary count for the FC cycle.
    • Additional funding needs special approval.

Opportunities and Challenges

Opportunities
  • Promotes outcome-driven governance
  • Aligns with international best practices (e.g., OECD’s Results-Based Budgeting)
  • Helps eliminate redundant or overlapping schemes
  • Provides scope for resource optimization
  • Improves public trust in welfare spending
  • Encourages inter-ministerial coordination
Challenges
  • Quality of third-party evaluations often suffers from lack of autonomy or technical expertise
  • Risk of premature termination of schemes with long gestation impacts (e.g., education, nutrition)
  • May affect demand-responsive schemes like MGNREGS during crises
  • Adds bureaucratic delays to reapproval processes
  • Absence of real-time monitoring and feedback systems in many schemes
Way Forward
  • Institutionalize Independent Evaluators: Create a national agency for public scheme evaluation (under CAG/NITI Aayog).
  • Strengthen Monitoring Infrastructure: Integrate real-time dashboards, public data releases, and geo-tagging.
  • Outcome Orientation from Inception: Define KPIs (Key Performance Indicators) at the planning stage.
  • Protect Welfare Schemes: Ensure schemes addressing vulnerable groups are not discontinued based solely on short-term outcome criteria.
  • Capacity Building: Train government officials in programme appraisal and cost-effectiveness analysis.
PYQ:

Q. Examine the role of NITI Aayog in promoting cooperative federalism and improving Centre-State coordination for effective implementation of development programs.

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