Scheme Rationalisation

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.