New Delhi. The big financial schemes of the central government are against the spirit of cooperative federalism because it affects the freedom of the states to spend. RBI has said this in the survey report released on the budget of the states. The central bank has talked about improvement in the financial condition of the states, but for the first time it has talked about the far-reaching financial ill-effects of the centrally funded economic schemes.

RBI has also said directly that adjusting the centrally funded schemes will help in reducing the financial burden not only on the states but also on the Centre. This RBI report has touched upon an issue which many states feel but no one has spoken about it clearly till now.

At present, the number of centrally funded schemes (CSS) is 75, whereas in 2016, the Union Cabinet had approved 28 schemes based on the recommendations of a sub-group of Chief Ministers of the states. Then the sub-group had said that the number of CCS should not exceed 30 in any case.

What does the RBI report say?

According to the RBI report, “Too many schemes of the Central Government affect the spending flexibility of the state governments and erode the spirit of cooperative federalism. If the Centrally Sponsored Schemes (CSS) are properly adjusted, the states will have more freedom to spend in the budget, which they can use according to the specific needs of their states. This will help in reducing the financial burden on both the states and the Centre.”

The central bank has said this in the context of improving the financial health of the states and making the assessment of their borrowing requirements more transparent. This kind of indirect warning from the RBI is being considered unexpected. After this comment, now we have to wait for the recommendations of the 16th Pay Commission. The report of the 16th Pay Commission headed by Arvind Panagariya will come by October 2025.

Why did RBI feel the need to raise questions?

In the budget forms for the year 2024-25, the number of centrally funded schemes is shown as 75. Their budgetary size has been kept at Rs 5,06,978.07 crore. Whereas in the year 2022-23, the size of these schemes was Rs 4,35,556.32 crore. The government is spending more than 10 percent of the total budgetary size through the help of these schemes.

This is a big reason why RBI felt the need to raise these questions. It is worth mentioning that in the first term of the Modi government itself, a sub-group of Chief Ministers of the states was formed to look into how CSS can be made more useful. This report was also approved by the government.