What are centrally Sponsored Schemes (CSS)?

Normally as per the constitutional dispensation, all activities in Government are categorized as those falling in: Central List, State List and Concurrent List. While there is no ambiguity with regard to the Central List, activities which fall under the State and Concurrent List are often subject to over-lapping jurisdiction between the Government of India and the State Governments. For example while the State Governments have the primary responsibility to provide better quality of education to the people, it is the overall responsibility of the Government of India to achieve certain monitorable national goals in terms of levels of education. Thus to fulfill these national goals the concept of Centrally Sponsored Schemes came up in successive five year plans.

Centrally Sponsored Schemes (CSSs) are extended by the Union Government to States under Article 282 of the Constitution. The Centrally-Sponsored Schemes are normally identifiable responsibilities of the Central Government while the responsibility for implementation of these programmes is normally vested with the State Governments. These schemes are formulated with monitorable targets at the central level with adequate provision of funds in the Union Budget under various Ministries. The objectives, strategy and methodology of implementation are prescribed and funds are released to the States based on their requirements. CSSs aim to promote equitable and sustainable human development.

The CSSs are implemented to achieve social objectives like poverty reduction,improving health services, raising food production, etc.

What is the process of flow of funds from Union to State?

The Centrally Sponsored Schemes (CSS) do not fall within the subjects allocated to the Union Government in List I of the Seventh Schedule of the Constitution. However, they are funded by the Union Government to achieve certain national objectives. The CSS have formed an important part of successive Five Year Plans. The flow of funds from the Union Government to the ultimate implementing agencies for any scheme is through one of these two channels:

  1. Funds are transferred to the Consolidated Fund of the State Governments which spend the money through the implementing agencies. In such cases, the agency banks at the field level, honour the payment claims made by authorized officers of the State Government and, in return, place the claim on the State Government through the RBI office at the State Headquarters.
  2. The Union Government transfers funds directly to implementing agencies in the States through normal banking channels. These agencies distribute funds progressively to lower level field formations through banking channels. The banks honour cheques up to the amount lying as credit in their respective bank accounts.

Actual expenditure under the CSS is incurred only when payment is made either to a beneficiary of the scheme or to the supplier of goods and services. However, due to the lack of a proper information system, the tracking of fund flow and correlation between the amount released and expenditure made could not be determined without a degree of uncertainty. Further, when funds are transferred directly to the implementing agencies in the States, it has to be done in advance which results in a substantial accumulation of funds in the pipeline.

The basic issues here are:

  1. whether the simple release of funds by Union Government Ministries/ Departments to State Governments/other implementing agencies, NGOs, societies etc in the States for implementing various centrally sponsored schemes could be termed as expenditure in their accounts,
  2. whether real time information about the use of funds so transferred is available,
  • whether such use of funds gets adequately reflected in government accounts, and
  1. how to minimize the costs of raising the financial resources which are lying unutilized.

Thus, it was pointed out that in case of expenditure incurred on Centrally Sponsored Schemes through the State Budget, the Accountants General (Accounts & Entitlements) in the States would not be able to link such expenditure unless the expenditure incurred on a scheme can be ascertained across all functional Major Heads of Accounts involved. Further, even the accounts compiled by Accountants General (A&E) would not capture the data distinctly under each Centrally Sponsored Schemes in the absence of uniform plan-budget link and a distinct sub-head for the each of the Centrally Sponsored Schemes. Moreover, the expenditure booked in the State Accounts consists of expenditure for the end-use as well as advances to implementing agencies without any distinction between them. There is no coding or accounting rules prescribing coding of the expenditure by their type (enduse, advance etc.)

Further, in many cases, transfers are recorded in registers and not made through account books. This further aggravates the position and the link to end use gets lost in transition. In case of transfers to societies, NGOs etc., their accounts do not get reflected in the governmental accounts. The problem of absence of coding by the type of expenditure exists here also, in the same manner as with the State Government.

It was, therefore, suggested that the following aspects, inter alia, would need to be taken care of:

  1. As in the case of funds from the State Budget, a provision / system should be mandatory for autonomous bodies and NGOs to capture their expenditure that can be identified to the particular Centrally Sponsored Schemes and the type of expenditure.
  2. A system may be put in place to track the amount in transit to the end-use through accounts / subsidiary accounts rather than through registers.

What are flexi-funds under CSS?

The introduction of a flexi-fund component within the Centrally Sponsored Schemes(CSS) has been made to achieve the following objectives:-

  • To provide flexibility to States to meet local needs and requirements within theoverall objective of each programme or scheme;
  • To pilot innovations and improved efficiency within the overall objective of thescheme and its expected outcomes;
  • To undertake mitigation/restoration activities in case of natural calamities in thesector covered by the CSS.

The flexi-fund would continue to be part of the parent Centrally Sponsored Scheme. It may be operated at the level of the Scheme, Sub-scheme and its Components, but not at the level of the Umbrella Program, for example, flexi-funds can be spent on any sub-scheme or component, including creation of a new innovative component, under the primary education scheme, but cannot be used to move primary education funds to the higher education or to any other sector. However, it would be permissible to use flexi-funds to converge different schemes under an umbrella program to improve efficiency and effectiveness of outcomes, for example, nutrition mission can be used to converge anganwadi services with maternity benefits, and health care networks can be used to provide a continuum of health care services across the primary, secondary and tertiary levels.

It may also be noted that the purpose of flexi-funds is to enable the States to satisfy local needs and undertake innovations in areas covered by the Centrally Sponsored Schemes. Flexi-funds should not be used to substitute State's own schemes and project expenditures. It should also not be used for construction/repair of offices/residences for government officials, general publicity,  purchase of vehicles/furniture for offices, distribution of consumer durables/non-durables, incentives/rewards for staff and other unproductive expenditures.

What are the salient provisions of the new Guidelines?

Under the new norms, flexi-funds in each CSS have been increased from the current 10 per cent to 25 per cent for states and 30 per cent for Union Territories.

The States, who want to avail of the flexi-fund facility, should constitute a State Level Sanctioning Committee (SLSC) on the lines of RKVY to sanction projects or activities under the flexi-fund component. However, participation of the concerned Central Ministry would be mandatory in the SLSC before the flexi-fund facility is invoked under any Centrally Sponsored Scheme.

States can use the fund to undertake mitigation or restoration activities in case of natural calamities, or to satisfy local requirements in areas affected by internal security disturbances.

States may, if they so desire, set aside 25 per cent of any CSS as flexi-fund to be spent on any sub-scheme or component or innovation that is in line with the overall aim and objective of the approved Scheme.

The flexi-fund facility is not for CSS which emanate from legislation, like MGNREGA.

Niti Aayog Recommendations on Monitoring & Evaluation

Web-based reporting for the use of flexi-funds may be designed by adding modules to the existing MIS. Outcomes (medium term) and outputs (short term) should be part of the MIS along with pictures/images and good practices to ensure greater transparency and learning across States.

Evaluation of flexi-funds may be done through the existing evaluation mechanism, including those set by the Ministries, NITI Aayog, or by independent third parties. Terms and conditions for evaluation may be designed in such a manner that outcomes of the Scheme as a whole, as well as the flexi-funds are well identified and measurable.

Flexi-funds within each CSS will be subject to the same audit requirements as the parent Centrally Sponsored Scheme, including audit by the Comptroller & Auditor General.


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