Rural affairs ministry shifts base to states

Mar 03 2014, 13:01 IST
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SummaryStates to get 61% of all Plan funds in FY15, up from 25% in FY14

Monday’s interim budget gave a bonanza to states in the form of a big hike in the transfer of Plan funds to their treasuries in FY15, acceding to their long-pending demand and in sync with the recommendation of many expert committees that reviewed the pattern of India’s public expenditure.

The funds for key centrally sponsored schemes (CSSs) including the UPA’s flagship schemes on employment guarantee, rural housing, health and education will now go to the consolidated funds of the states, instead of getting directly transferred to implementing agencies.

A whopping 61% of the FY15 Plan expenditure (gross budgetary support) of Rs 5.55 lakh crore will now reach state treasuries as against 25% of the Rs 4.75 lakh crore this year.

Although the states cannot divert these funds to any other purpose other than the designated schemes, it will increase their spending power, apart from adding to their role in implementation, analysts said. States are also unhappy with the lack of clarity on the BK Chaturvedi panel’s suggestion — that 20% of these Plan funds be treated as “flexi-fund” so that states can utilise one-fifth of the funds in the way they deem fit, although within that particular programme.

Sushil Modi, the former finance minister of Bihar, told FE: “The move has been a result of incessant demand by chief ministers of various states at the National Development Council meeting to transfer funds under the centrally sponsored schemes directly to the states. “However, it’s not clear if the Chaturvedi panel suggestion about flexi-funds be implemented.”

“Once states start getting large chunks of CSS funds, the spending will come under the CAG ambit. Currently, the CSS funds spent through agencies like DRDA are audited by chartered accountants designated by the CAG,” said PR Jena of the National Institute of Public Finance and Policy.

Currently, the transfers of Plan funds from the Centre to states are usually of four types: State plan schemes that include normal central assistance and other scheme-based central aid, which are also known as additional central assistance (ACA); CSSs for which funds are routed through consolidated fund of states; the CSS for which funds are transferred directly to state/district level autonomous bodies/implementing agencies and a small portion of finance commission grants treated as Plan grants.

Over the years transfer of funds through the CSS, as a percentage of the gross budgetary support (GBS), has proliferated from just over 31% during

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