The Centre reduced the outlay on centrally sponsored schemes for the current financial year by a whopping Rs 91,000 crore or 18% of the budget estimate for the schemes due to the discovery of Rs 1.6 lakh crore unspent balances with them from previous transfers, reflecting a lack of absorptive capacity in states.
The unintentional savings in the schemes freed up the Centre’s resources for other productive purposes such as the buyback of dated securities worth Rs 88,000 crore to curb burgeoning interest costs. In the revised estimate (RE) for FY25, the outlay on centrally sponsored schemes has been lowered to Rs 4.15 lakh crore from Rs BE of Rs 5.06 lakh crore.
“We will provide more money if states can spend, but they can’t sit on funds provided by borrowing from the market,” a senior official said.
Through the Public Financial Management System (PFMS), the Centre has been capturing data in real-time on the use of funds routed via state treasuries to their nodal agencies (SNAs) for each scheme for the last three years.
“This is the first time we have pushed and aligned our estimates for the schemes based on the absorptive capacity of the states,” the official said, adding that they have to ponder about improving their absorptive capacity of resources made available through these schemes.
For the first time in the budget document presented in the Parliament on February 1, the Centre has disclosed that as much as Rs 1.6 lakh crore including states’ shares from previous transfers are unspent as of December 2024. Of this, Rs 1.2 lakh crore is lying with the SNAs and Rs 40,000 crore with states/union territories treasuries.
Major schemes in which allocated have been lowered include Jal Jeevan Mission in which outlay has been cut by two-thirds to Rs 22,694 crore from BE of Rs 70,163 crore as unspent balances at Rs 13,783 crore from past transfers. Similarly, the allocations have been lowered by 40% for Pradhan Mantri Awas Yojana (PMAY-G)-Gramin from Rs 32,426 crore from Rs 54,500 crore and PMAY-Urban cut by 51% from Rs 23,712 crore to Rs 11,609 crore. In PMAY-G and PMAY-U, unspent balances with states at Rs 14,715 crore and 6,012 crore from past transfers, respectively.
Along with the reduction in outlay on centrally sponsored schemes, lower capex led to a 2% fall in the Centre’s budget size to Rs 47.16 lakh crore in revised estimate from Rs 48.2 lakh crore in FY25BE,
The interest cost of the Centre is likely to rise to 25.2% of the budget size in FY26 from 24% in FY25 revised estimate, reflecting the surge in accumulation of debt post-Covid.
On the borrowing front, the government has pegged just 6% growth in gross borrowing at Rs 14.8 lakh crore for FY26, one of the lowest in recent years compared to the nominal GDP growth rate. Officials reckon that the gross borrowing would have shot up significantly next year had the government not done buybacks and switching of Rs 2.35 lakh crore of dated securities this fiscal.