Why the central scheme needs a trim

As India’s politics becomes more decentralised,administration and delivery are becoming more centralised

Written by Yamini Aiyar | Published: June 29, 2013 12:15 am

As India’s politics becomes more decentralised,administration and delivery are becoming more centralised

The Union cabinet has approved a Planning Commission proposal to downsize Centrally Sponsored Schemes (CSS) from the current 147 schemes to 66. It will inject flexibility in implementation by creating a “flexible fund”,of up to 10 per cent of scheme outlays,for state governments to develop their own schemes. In April,an expert committee on leveraging panchayats for the implementation of CSS released a report recommending that CSS be restructured to enable greater local government engagement in planning and implementation. These proposals are an important step in reforming social policy administration. CSS have long been criticised for encouraging a centralised,one-size-fits-all approach. If designed correctly,these reforms could pave the way for an ambitious restructuring that not only reduces centralisation but also builds an inter-governmental transfer system that privileges local innovation and rewards outcomes.

CSS are specific-purpose fiscal transfers from the Centre to states for implementing social sector programmes,including the Sarva Shiksha Abhiyan and MGNREGA. Over the years,CSS have become rather popular. Fiscal transfers through CSS now rival constitutionally designed routes,like grants under Article 275 or revenue sharing arrangements. In 2012-13,fiscal transfers through CSS and the Additional Central Assistance exceeded Rs 3,08,000 crore,while transfers through revenue share arrangements and grants in aid,amounted to Rs 3,66,000 crore.

By design,CSS privilege a centralised administrative system and,typically,cover domains that are state and local government subjects,such as health and rural roads. Yet,key decisions like budgetary allocations and implementation strategies are taken by the Centre. State governments contribute a share of the finances and implement the scheme,but have little or no say in design. Many CSS do require state governments to prepare annual plans,identifying priorities and budgetary requirements. But it is the Centre’s priorities that get funded. The consequence is that states often lack ownership,and when implementation is weak,the Centre can easily blame states,as it often does.

The proliferation of CSS in recent years has deepened this centralisation. States end up pooling the bulk of their financial resources for contributing their share of CSS. Consequently,state plans end up being tailored to Central funding priorities,leaving states with little wiggle room to design and implement programmes of their choosing. The irony is that,as Indian politics becomes more decentralised,the administrative architecture and delivery mechanism are becoming more centralised.

Administratively,CSS are difficult to implement. Each scheme has its own planning,monitoring and accounting requirements. Additionally,many CSS have set up and fund societies that run parallel to the state administration and local government. The result is a cluttered institutional environment with multiple,parallel and stand-alone management systems where responsibilities overlap. Worse,this bewildering array of implementation systems and overlapping responsibilities allows every level of government to pass the buck. This institutional clutter has been particularly disastrous for local governments. Not only do these parallel bodies perform functions that are constitutionally the domain of local governments but the multiplicity of implementation arrangements also makes integrated district plans — the backbone of local government — impossible.

So what would a reformed CSS look like? Trimming the number of CSS and introducing a flexible fund will certainly help streamline management and plant the seeds for greater state ownership. But if the design flaws in CSS are to be fixed,the scope of the restructuring will have to be broadened to include,at minimum,two important reforms.

First,the institutional clutter at the local level needs to be cleared. This means integrating parallel bodies back into the state administration and local government structure and clearly articulating roles for each level. The blueprints for this integration already exist. A 2006 study by Lant Pritchett and Varad Pande draws on the first principles of public finance and accountability to map roles and responsibilities in the elementary education sector. The expert committee report on panchayats and CSS expands on this method to develop model “activity maps” for all CSS. These offer useful starting points for integrating parallel bodies and ensuring an optimal division of labour across levels of government.

Second,the challenge of centralisation requires a far more radical shift in the inter-governmental transfer system than the current restructuring proposal offers. One approach could be to redesign CSS as issue-specific block grants (water supply or elementary education) rather than as pre-packaged schemes,leaving states to design appropriate intervention strategies. To ensure that objectives are met,these should have clear,measurable goals.

But greater flexibility at the state level may not be enough. India decentralised because it recognised that effective social policy must be tailored to local needs,and this is best done through smaller (district and village) administrative units. Fiscal transfers for CSS need to be consistent with this approach. This could be achieved by linking financial transfers in CSS to activity maps and building in penalties if state governments withhold transfers.

In this scenario,the role of the state and Central government would shift from being micro-managers to being goal setters and performance monitors. This could serve as the foundation for an outcomes-based fiscal transfer system where state and local governments are given money on condition of meeting certain clear outcome targets. In its early days,UPA 2 had committed to setting up an independent evaluation office; a restructured CSS could well be the opportunity to make good on this promise. If done well,this could be the UPA’s last chance to leave behind a lasting legacy. But is it up to the task?

The writers are with Accountability Initiative,Centre for Policy Research. Raghunandan was the principal consultant for the expert committee on leveraging panchayats for CSS

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