The Centre has spent only about Rs 2,000 crore so far in the current financial year under the flagship Pradhan Mantri Gram Sadak Yojana (PMGSY), accounting for just 10.5% of the Rs 19,000 crore allocated for the scheme in the Union Budget.
Even if another Rs 2,000 crore is expended in the remaining three months of the fiscal, annual spending would still be far below the outlay, potentially yielding savings of nearly Rs 15,000 crore.
This underspending is largely the result of states’ limited capacity to utilise funds. In several cases, states are sitting on unspent balances from earlier releases or have failed to contribute their mandated share under the scheme.
While this may have slowed the pace of rural road construction in some regions, the resultant savings have come as a relief for the Centre at a time when tax revenues are under pressure. The lower expenditure, driven by tighter fiscal management rather than fresh cuts, is expected to provide a cushion against revenue shortfalls.
At the same time, the Centre has initiated a major reform in the way funds are released for centrally sponsored schemes (CSS), which together have an aggregated annual budget outlay of about Rs 5 lakh crore. From this financial year, funds for all CSS are being routed through the Reserve Bank of India (RBI) platform instead of state treasuries, a move aimed at curbing the floating of funds and reducing unnecessary borrowings by the Centre.
Ending the Floating of Funds
These schemes have been notified under the Single Nodal Agency (SNA) SPARSH model, which represents the second phase of the “just-in-time” fund release system. The objective is to prevent funds from lying idle and to ensure that money is released strictly in line with actual expenditure requirements.
Earlier, the Centre transferred CSS funds to state treasuries, which then released the central share along with the state’s contribution—typically around 40%—to the bank accounts of state-level SNAs. However, despite clear instructions on just-in-time releases, some states delayed transferring both the central funds and their own share to SNAs. This often disrupted scheme implementation and, in certain instances, allowed states to temporarily divert central funds for non-scheme purposes to manage their fiscal deficits.
Under the new RBI-routed mechanism, such issues are expected to be minimised. Each state SNA will now maintain a separate account with the RBI for every scheme. Instead of upfront fund transfers, the Centre will issue an authorisation amount to the RBI in line with the scheme’s sharing pattern, with states issuing similar authorisations for their share. When an actual payment is due, the state will forward the payment request to the Centre, which will route it to the RBI. The RBI, already holding the necessary authorisation, will release funds first from the Consolidated Fund of India and then from the respective State Consolidated Fund.
Saturation and Capacity
PMGSY expenditure primarily supports rural road connectivity under Phases I, II and III, along with the newly launched PMGSY-IV, which focuses on connecting new habitations. However, with the scheme nearing saturation in many areas and receiving relatively less attention from states, utilisation levels have remained uneven.
Launched in 2000, PMGSY aims to provide single all-weather road connectivity to eligible unconnected habitations, based on population thresholds defined under Census 2001, with updated criteria under Census 2011 for PMGSY-IV.