7 PM | Constitution’s Seventh Schedule, which differentiates between spending by the Centre and states, needs a re-look | 12th September, 2019

Context:  Schedule 7 of Indian Constitution and difference between Central Sector and Centrally Sponsored Scheme.

Legislative powers in the federation:

• The essence of federalism lies in the sharing of legal sovereignty by the Union and the federating units. The most precise way of demarcating the respective areas of the federation and federating units is to demarcate their respective areas in regard to legislation. There are two most important reasons for it:
  • Demarcation of legislative power helps in defining boundaries of the executive power also, as usually the former controls the latter.
  • It is easier to verbally formulate, with reasonable precision, the various topics on which the legislative power can be exercised, as the legal system of a country would usually have had occasion to deal with the topic in some form or other.
• Seventh Schedule provides division of powers between the Union and the States in terms of List I (Union List), List II (State List) and List III (Concurrent List). Presently, the Union List contains 100 subjects (originally 97), the state list contains 61 subjects (originally 66) and the concurrent list contains 52 subjects (originally 47).

Union List (List I)

• This list comprises of the subjects which are of national importance and admit of uniform laws for the whole of the country.
• The legislative powers to legislate these matters are solely vested in the union parliament.
• The integral subjects which falls within the ambit of Union List are: Defense, Foreign Affairs, Currency and Coinage, War and Peace, Atomic Energy, National Resources, Railways, Post and Telegraph, Citizenship, Navigation and Shipping, Foreign Trade, Inter-State Trade and Commerce, Banking, Insurance, National Highways, Census, Election, Institutions of higher education and others.

State List (List II):

• This list speaks about the subject matters those are related to local or state interest hence it directly falls within the legislative competence of state legislature.
• The major ones of the State List are: state court fees, prisons, local government, public order, police, public health and sanitation, hospitals and dispensaries, pilgrimages within India, intoxicating liquors, relief of disabled and unemployable, libraries, communications, agriculture, animal husbandry, water supply, irrigation and canals, fisheries, road passenger tax and goods tax, capitation tax and others.

Concurrent List (List III):

• This list is the most distinctive feature of Indian Constitution as it cannot be found in any other federal constitutions.
• Among the 47 items enumerated in the list, all can be legislated by both union parliament and the state legislature as both of them possess the concurrent power of legislation.
• This particular list mostly serves as a device to loosen the excessive rigidity of the two-fold distribution.
• It is mostly reckoned as the twilight zone of the constitution as it allows the legislative power to vary from state legislature to parliament based on the importance of the matters.
• Few of the major listed  subjects are as follows; criminal law, criminal procedure, preventive detention for reasons concerned with the security of state, marriage and divorce, bankruptcy and insolvency, forests, protection of wild animals and birds, population control and family planning, trade unions, education, labour welfare, and others.

Central Sector Schemes (CSs):

• Central sector schemes are schemes with 100% funding by the Central government and implemented by the Central Government machinery.
• The central sector schemes are mainly formulated on subjects mainly from the Union List.
• Besides, there are some other programmes that various Central Ministries implements directly in States and UTs which also comes under Central Sector Schemes.
• In these schemes, the financial resources are not shifted to states

Centrally Sponsored Schemes (CSSs):

• Centrally Sponsored Schemes are the schemes by the centre where there is financial participation by both the centre and states. Historically, CSS is the way through which central government helps states to run its Plans financially.
• A stipulated percentage of the funding is provided by the States in terms of percentage contribution. The ratio of state participation may vary in 50:50, 60:40, 70:30, 75:25, or 90:10; showing higher contributions by the centre.
• Centrally Sponsored Schemes are divided into three: core of the core, core and optional:
  • Financing of core of the core schemes: these schemes comprises six umbrella schemes. After restructuring, the Core of the Core schemes will retain their expenditure allocation framework. Most of these schemes prescribes specific financial participation by states. For example, in the case of MGNREGA, state governments have to incur 25% material expenditure.
  • Financing of core schemes: In the case of core schemes, the funding pattern is 60:40 for center and states respectively. But for difficult states (NE and Himalayan states), there will be 90:10 pattern.  
  • Financing of Optional Schemes: For these schemes, the normal funding pattern is 50:50 and for difficult states its 80:20. States have the flexibility to decide whether to initiate a specific scheme or not.

Reason of debate on restructuring:

• The present CSS basket has an expiry date of March 31, 2020 which is co-terminus with recommendations of the 14th Finance Commission. Therefore, from April 1, 2020, we will have a new CSS basket.
• The ToR (terms of reference) for the 15th Finance Commission mention a re-examination of CSSs, in a way. The Commission may consider proposing measurable performance-based incentives for states, at the appropriate level of government.

Planning Commission’s 2001 B K Chaturvedi report on restructuring of CSSs:

• The report suggested that nine flagship schemes (MGNREGA, IAY, SSA, NRHM, and so on) should remain as CSSs, while another six schemes (JNNURM, RKVY and so on) should become CSs. Fifteen is a large enough number of schemes for public expenditure.
• So when implemented, all schemes were repackaged and retained. It was restructuring in the sense of rearrangement. 

The Niti Aayog’s 2015 Sub-Group of Chief Ministers’ Report on rationalization of CSSs:

• Rationalization implies a rationale for the continuation of existing schemes, scrapping of some, and even introduction of fresh ones.
• Key Recommendations:
  • Focus of CSS should be on the Schemes that comprise the National Development Agenda where the Centre and the States will work together in the spirit of Team India.
  • Accordingly, existing CSS should be divided into: Core and Optional schemes.  Amongst the Core Schemes, those for social protection and social inclusion should form. The Core of the Core and be the first charge on available funds for the National Development Agenda.
  • The existing CSS should be restructured and their number should be reduced to a maximum of 30 schemes. All these schemes would be ‘Umbrella Schemes’, with every scheme having a large number of components with a uniform funding pattern.

Conclusion:

The Seventh Schedule was a product of historical evolution and circumstances and contemplated a certain structure of this optimal level of governance. However change is the law of nature. A CSS restructuring/rationalisation debate requires relook at the Seventh Schedule, and cannot be done without consultation with states at an appropriate forum.

Source: https://indianexpress.com/article/opinion/columns/spending-issues-budget-2020-central-sector-centrally-sponsored-scheme-centre-borne-expense-union-5987115/