Centrally sponsored schemes violate the spirit of federalism, also wastes public resources 

Centrally Sponsored Schemes (CSSs) funded under article 282 of the Constitution not only pose a threat to federalism but also lead to misapplication of scarce public resources

India Federalism


Shri G C Murmu

Comptroller & Auditor General of India (CAG)

Dear Shri Murmu,

Earlier, vide my letter dated 20-9-2022, I had requested your office to conduct a special audit of a Centrally Sponsored Scheme (CSS), PM Fasal Bhima Yojana (PMFBY), as it seemed to benefit private insurance companies more than the needy farmers. My letter is readily accessible at https://countercurrents.org/2022/09/pmfby-does-it-provide-insurance-for-farmers-or-for-private-corporates-request-for-a-performance-audit/?swcfpc=1

Funds for CSSs are released by the Centre under Article 282 of the Constitution, which in effect implies diversion of funds from the pool to be shared between the Centre and the States on the basis of the well established norms laid down by the Finance Commission (FC). Article 282 enables the Centre to release funds outside the FC domain for dealing with exceptionally special circumstances, not for circumventing the authority of the FC. Unfortunately, over the years, the successive governments have unduly exploited this provision to bypass the FC norms, in violation of the spirit of federalism.

More recently, since 2014, this trend has become more conspicuous, with the political leadership making use of the provision to diminish the State’s political role and gain political leverage for itself. In 2014-15, the CSS fund releases under Article 282 constituted only 7.5% of the gross fund transfers to the States in that year. In contrast, in the Budget estimates for 2022-23, the corresponding proportion is around 47%. If this trend is to continue, the day is not far off when discretionary grants from the Centre to the States will eclipse rule-based transfers, eroding the role of the FC. If this happens, very little political space will remain for the States, with the governance system becoming more unitary than federal.

More importantly, it is the States and the local elected bodies which have the locational advantage in appreciating the region-specific ground realities. Any attempt to bypass their role would not only reduce the relevance of the CSSs to the ground requirements but also lead to misapplication of the scarcely available public resources. In this connection, I would earnestly call upon you to peruse a letter I had written sometime ago to the State Chief Ministers (https://countercurrents.org/2022/09/increasing-threat-to-federalism-from-centrally-sponsored-schemes-need-to-form-a-federal-front/), which points to the far reaching implications of proliferation of the CSSs.

In this connection, I now invite your attention to yet another CSS, the PM Kisan Samman Nidhi Yojana (PMKSNY), under which an amount of Rs 6,000 is transferred directly every year by the Centre to the bank accounts of eligible farmers, without any role assigned for the States and the local Gram Sabhas, and till recently, without an independent social audit. Such bank transfers are based on the Centre’s belief that the farmers’ bank accounts are authentic, linked to their Aadhar numbers.

From a Press Information Bureau (PIB) report dated 11-3-2022, since the introduction of the scheme till 22-2-2022, a total amount of Rs 1.82 lakh crore had been released under PMKSNY, which by any stretch of imagination, is no small amount. If there are fake bank accounts or Aadhar numbers, the amounts going into dubious accounts could be substantial.

It appears that such misapplication of funds has indeed taken place according to several reports, For example, The Centre for Policy Research ( https://accountabilityindia.in/publication/pradhan-mantri-kisan-samman-nidhi-budget-briefs-2022-accountability-initiative-centre-for-policy-research/) has pointed out several instances of funds going to ineligible beneficiaries on a significant scale. Another news report (https://finshots.in/archive/pm-kisan-scam-explained/) suggested that “Assam reported that 8.35 lakh ‘farmers’ siphoned off ₹558 crores. In Tamil Nadu, nearly 6.97 lakh farmers were able to swindle ₹321 crores. In Karnataka, ₹440 crores went to 4 lakh ineligible farmers. And in Uttar Pradesh, a whopping 21 lakh ‘farmers’ were found to have received money that they shouldn’t have”. This report suggested that at least Rs 4,000 Crores of funds under the scheme have fallen into wrong hands. In the absence of independent concurrent social audits, it is difficult to find out the actual numbers of fake accounts into which the Centre’s funds had been directly transferred year after year. It is inexplicable as to how the concerned Central Ministry had ever thought of implementing a scheme of this kind on such large scale without a concurrent social audit. Had the beneficiaries been chosen in the full view of the local Gram Sabhas, which are Constitutional bodies in their own right, such irregularities would not have taken place. Belatedly, some States and the concerned Central Ministry have since ordered social audits but it is like “locking the stable door after the horse is stolen“.

This is something that is truly distressing and the office of the CAG should subject implementation of the scheme to a special audit.

There is a much larger question that needs to be addressed in this connection. The Centre’s excessive reliance on CSSs based on direct bank transfers, that too bypassing the local bodies and the States, inherently exposes it to the risk of misapplication of the funds. There are several CSSs which are similarly based on direct bank transfers and all such CSSs need to be subject to an independent audit, keeping in view the possibility of some bank accounts being on false names.

The CAG cannot also ignore the adverse implications of proliferation of the CSSs for the delicate federal relationship that exists between the Centre and the States. The Fifteenth Finance Commission (FFC) has observed, “Centrally sponsored schemes (CSS) co-financed by the Government of India should be flexible enough to allow States to adapt and innovate. Top-down mandates and strictures on programme implementation are the antithesis of an open-source model”.

Proliferation of the CSSs, in the absence of freedom for the States to adapt the same to match their own regional needs, would erode the overall efficiency of utilisation of the funds, in addition to its being totally inconsistent with the normative approach of the Finance Commission. These are aspects that need to be brought to the attention of the Parliament for a comprehensive discussion.

Against this background, may I appeal to you to take up a performance audit of not only PMFBY and PMKSNY but also all other CSSs taken together, as such an audit is likely to show how Central resources, which ought to have been shared with the States as per the FC norms, are being subject to misapplication on a significantly large scale and are being put to inefficient use?


Yours sincerely,

E A S Sarma
Former Secretary to Government of India

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