Need for Rationalisation of Centrally Sponsored Schemes

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According to the 15th Finance Commission, several Centrally Sponsored Schemes are just boutique in nature with ‘dubious’ outcomes. It had called for an urgent rationalisation of the CSSs.

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This topic of “Need for Rationalisation of Centrally Sponsored Schemes” is important from the perspective of the UPSC IAS Examination, which falls under General Studies Portion.

What is a Centrally Sponsored Scheme?

  • Centrally Sponsored Schemes are schemes that are implemented by the State Governments but are largely funded by the Central Government with a defined State Government share.
  • Example: MGNREGA, PM Gram Sadak Yojana etc.
  • Historically, the CCS is a way through which the Central Government helps States to implement its Plans through financial assistance.
  • A stipulated percentage of the funding is provided by the states in terms of percentage contribution.
  • The ratio of financial sharing varies but commonly, the Centre contributes a larger share of financial assistance.
  • Centrally Sponsored Schemes are created on areas that are covered under the State List.
  • CSSs are further divided into:
  1. Core of the Core Schemes
  2. Core Schemes
  3. Optional Schemes

How is CSS different from Central Sector Scheme?

  • In Central Sector Schemes, all expenditure is borne by the Centre.
  • The CSS is mainly funded by the Centre while the States bear the rest of the financial burden.

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What are the limitations of CSS?

  • CSS homogenises Centre’s agenda and priorities to the whole of the nation and these may not be relevant or necessary for all states.
  • It provides very little flexibility to the states.
  • It may not be practical in all cases.
  • It may not be on par with the ground reality.

Does CSS need re-examination?

  • Indeed, there is a need to reform Centrally Sponsored Schemes.
  • The present CSS basket has an expiry date of March 31, 2020, which is coterminous with recommendations of the 14th Finance Commission.
  • Thus, from April 1, 2020, there will be a new CSS basket and the government needs to build a strategy for the new CSS basket in advance since the 2020-21 Union and State budgets need to take into account the new CSS basket.
  • The Terms of Reference to the 15th Finance Commission had mentioned the relook into the CSS.
  • NITI Aayog’s 2015 sub-group of Chief Ministers has also recommended rationalisation of the Centrally Sponsored Schemes.
  • “Rationalisation” here suggests more than the restructuring of the CSS.
  • It should include analysis of the rationale behind the continuation of the existing schemes, removal of redundant schemes and introduction of new ones on par with the needs of the nation.
  • According to the former planning Commission’s 2011 B K Chaturvedi report, restructuring of the CSS is necessary to solve some of the structural problems like:
  • CSS has multiple aims and service delivery standards are not defined clearly.
  • In principle, the Centre must consult with the States while designing the Centrally Sponsored Schemes. However, in reality, it is rarely done.
  • Furthermore, the “one-size-fits-all” approach can hardly be on par with the ground reality, especially in a large and diverse nation like India.

Should States provide a financial contribution to the matters in the Union List?

  • The Central Government had recently amended the Terms of Reference (ToR) issued to the 15th Finance Commission, requesting it to examine a separate mechanism for funding of defence and internal security.
  • The question arises on whether or not the states should be asked to pay for defence.
  • Under Article 282 of the Indian Constitution, both the Union and the States may make any grants for the public purposes to each other.
  • However, States should not pay for the defence and internal security of the nation.
  • The reasons are as follows:
  • The defence is a national public good and the beneficiaries of the service (Centre) should pay for it.
  • Thus it becomes the primary responsibility of the Centre to defray the cost of protecting the nation.
  • Furthermore, it should be taken into account that the assigned expenditure of the states is much larger than their revenue potential.
  • The Constitution provides for the sharing of taxes collected by the Centre and making grants to the States from the consolidated fund of the Centre based on the recommendations of the Finance Commission.
  • The Finance Commission is supposed to take into account the capacities and needs of the Union and different states in making recommendations.
  • Thus, once the Finance Commission makes recommendations after assessing the requirements including those of the defence, the responsibility for paying the defence expenses falls on to the Centre.
  • The States simply do not have the resources to spend beyond the subjects that come under their jurisdiction as the Finance Commission does not provide for it in its assessment.

What can be the way forward?

  • As it was mentioned earlier, the measly reorganization of the existing Centrally Sponsored Schemes is not enough to rationalise the same.
  • It should be noted that the restructuring of the CSS requires a constitutional amendment of 7th This should be done with thorough deliberation with all stakeholders.
  • Also, there is a need for clear cut analysis of the need for the existing CSS and elimination of those Centrally Sponsored Schemes that are not necessary.
  • New CSS should be launched after the consultation with the States. Interstate Council should be made use of for this purpose.
  • Additionally, these schemes should have ample flexibility so that they are inclusive to all.


Rationalisation of the CSSs is a need of the hour, given the far too many schemes with dubious outcomes in the states. Even the ones that are operational do not justify the high establishment cost being incurred on them. Thus, the above-mentioned aspects must be taken into consideration during the rationalisation of the CSS for it to be of use to the nation at large.

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Bk chaturvedi report 2011 not 2001.
Please correct it

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