Expenditure on centrally sponsored schemes (CSS), which are shared in 6:4 ratio between the Centre and states, may suffer in FY21 as cash-starved states may not be able to contribute their share to be able to fully implement these schemes.
Expenditure on centrally sponsored schemes (CSS), which are shared in 6:4 ratio between the Centre and states, may suffer in FY21 as cash-starved states may not be able to contribute their share to be able to fully implement these schemes. As per norms, states can’t utilise transfers from the Centre for these schemes unless they put in their shares. Even though some states have requested the Centre to allow them to utilise only the central funds in such schemes in FY21, the union finance ministry may not permit such a leeway.
“It is rather difficult for us to (allow only use of central funds) because the scheme objectives will not be realised,” expenditure secretary TV Somanathan told FE. He, however, said no formal decision has been taken so far on the request of the states for such a relaxation. If the states keep central transfers idle, additional instalments in subsequent months will not be released till earlier releases are utilised, he added.
With tax revenues dwindling, funding crunch has already forced Maharashtra to give priority to CSS schemes in FY21 over state schemes to be able to maximise the benefits under CSSs, state finance secretary (expenditure) Rajiv Mittal said. With own revenues of many states falling short of target by about 80% in April and likely to face similar shortfalls in May, normal tax devolutions by the Centre in April-May and the hike in states’ ways and means advances have allowed at least some states to refrain from excessive front-loading of borrowings or resorting to other forms of costly fund-raising so far. “The Centre should think of making all schemes 100% central funded this fiscal. So that states’ resources are utilised for Covid-19 related preparations and relief,” said an official of another state government.
According to FY21 Budget estimate (BE), the Centre is estimated to spend about Rs 3.4 lakh crore on CSSs, with Rs 3 lakh crore or 88% through states and the Union Territories. While the FY21 allocations for CSS represented a year-on-year growth of 7% compared with revised estimate of FY20, it could actually turn out to be much lower or see an annual decline.
While the Centre won’t cut funding for flagship schemes (states may not use fully though), it could cut spending on smaller CSS schemes keeping in view the sharp decline in its revenue collections after outbreak of Covid-19. With tax revenues even not enough to cover tax devolution to states, which was double than tax receipts by the Centre in April-May, the Centre decided to scale up its market borrowing by 54% to Rs 12 lakh crore in FY21 to meet various funding commitments.
As part of the re-organisation of CSSs in 2015, funding pattern is 60:40 between the Centre and states for the following broad category of schemes (flagship schemes): Pradhan Mantri Krishi Sinchai Yojana, Swachh Bharat Abhiyan, National Rural Drinking Water Programme, National Health Mission, National Education Mission, Integrated Child Development Service, Mid-Day Meal Yojana, Housing for All, Atal Mission for Rejuvenation and Urban Transformation (AMRUT) and Smart Cities, Pradhan Mantri Gram Sadak Yojana, etc. For north-eastern states and three Himalayan states, the funding ratio is 90:10 between the Centre and the states.