[Answered] Centre’s new funding curbs and ‘sunset dates’ for schemes like MGNREGA aim for effectiveness. Analyze their implications for welfare delivery, fiscal federalism, and responsive social security in India.

Introduction

The Finance Ministry’s June 2024 directive to impose ‘sunset clauses’ and strict funding curbs on Central and Centrally Sponsored Schemes (CSSs), including demand-driven schemes like MGNREGA, reflects an evolving paradigm in public finance—focusing on accountability, impact assessment, and fiscal prudence.

Rationale Behind the Move

1. Efficiency and Accountability: India spends over 5% of its GDP on subsidies and welfare schemes. However, many schemes suffer from fragmentation, duplication, and mission drift. Introducing sunset clauses ensures periodic re-evaluation and disincentivizes bureaucratic inertia in poorly performing schemes.
2. Fiscal Prudence: With high fiscal deficits (5.1% of GDP in FY25 Budget Estimate), the Centre seeks to optimize limited resources by capping total scheme outlays (5.5x average of FY22–25 spending). It aligns with the broader reform agenda of outcome-based budgeting and fiscal consolidation.

Implications for Welfare Delivery

1. Positive Outcomes: Evaluation-based extensions will help scale high-impact programmes such as Swachh Bharat Mission or PMAY-U which have measurable outcomes. Encourages ministries to adopt a results-based framework and engage third-party assessors and real-time dashboards.
2. Concerns for Universal and Rights-Based Schemes: MGNREGA, a demand-driven, rights-based law under the Ministry of Rural Development, is designed to respond to distress, not fixed quotas. Imposing projected beneficiary ceilings undermines the Act’s legal guarantee of 100 days of wage employment. This may erode welfare responsiveness, especially during droughts or job crises.
3. Potential Exclusion: In schemes like PM Poshan or ICDS, stricter financial ceilings could lead to exclusion errors and delayed fund releases, particularly affecting children, women, and the elderly in vulnerable communities.

Impact on Fiscal Federalism

1. Increased Central Control: Centrally Sponsored Schemes account for 41% of total CSS/CS expenditure, often with rigid guidelines despite implementation by States. The new fund limits and approval requirements (even for demand-driven increases) reflect a unitary tilt, potentially infringing on State autonomy.
2. Strained State Finances: States contribute a share (often 40%) in CSSs, but unpredictable central disbursements can distort State budgeting cycles, forcing them to either cut welfare or borrow more. This contradicts the spirit of cooperative federalism advocated in the 14th and 15th Finance Commissions.

Responsive Social Security: The Balancing Act

1. Need for Data-Driven Reforms: Schemes must be aligned with SDGs, poverty estimates, climate vulnerabilities, and health indicators, not only fiscal benchmarks. Example: Expansion of Ayushman Bharat must consider health inflation and rural morbidity, not fixed outlay ceilings.
2. Integrated Monitoring Systems: Aadhaar-based Direct Benefit Transfers (DBT), JAM trinity, and SEBI/NITI Aayog performance dashboards can help ensure real-time feedback loops to improve welfare targeting without cutting entitlements.

Conclusion

While sunset clauses and fiscal curbs bring rigour and discipline to public expenditure it may compromise inclusive growth and social resilience. For a welfare state like India, balancing fiscal discipline with the flexibility to protect the vulnerable remains essential for meaningful social security and robust federal cooperation.