Reforming Centrally Sponsored Schemes (CSS)

• 04 Nov 2025

For Prelims: Comptroller and Auditor General of India (CAG), Centrally Sponsored Schemes (CSS), SDGs, MGNREGA, Mid-Day Meal, Special Category States, Supreme Court, Election Commission, Direct Benefit Transfer (DBT).

For Mains: Centrally Sponsored Schemes (CSS): Implementation Challenges and Reforms, Role of the Comptroller and Auditor General (CAG): Ensuring Financial Integrity and Accountability.

Source: IE

Why in News?

The Comptroller and Auditor General of India (CAG) has set up a committee to tackle challenges in Centrally Sponsored Schemes (CSS) and strengthen their budgeting, accounting, and payment systems.

• It will review how states reflect and integrate CSS allocations with SDGs, aiming for uniform and transparent budgeting and accounting practices nationwide.

What are Centrally Sponsored Schemes (CSS)?

• About: CSSs are schemes that are jointly funded by the Centre and States, implemented by the States, and focus on areas listed under the State and Concurrent Lists of the Constitution.
  • They are designed to supplement State efforts by leveraging the Centre’s stronger financial capacity, with all fund transfers routed through the Consolidated Fund of the State.
  • India currently runs 54 CSS and 260 Central Sector Schemes, with 8 paise of every rupee spent on CSS.
• Categories: CSS is divided into three main categories:
  • Core of the Core Schemes: These are the most essential programmes aimed at social inclusion and protection, such as MGNREGA.
  • Core Schemes: Focused on key developmental sectors like agriculture, infrastructure, education, health, and rural development, examples include the Mid-Day Meal (School Nutrition Programme) and Pradhan Mantri Gram Sadak Yojana.
  • Optional Schemes: States have the flexibility to implement these based on their priorities, such as the Border Area Development Programme.
• Financing: The Centre allocates around 10% of its budget to CSS, with the Centre-State funding ratio varying as follows: 60:40 for most schemes, 80:20 for select schemes, and 90:10 for North-Eastern and Special Category States.
• Difference Between CSS and Central Sector Schemes:

Basis	Central Sector Schemes (CS)	Centrally Sponsored Schemes (CSS)
Funding	100% funded by the Central Government	Funded by both Centre and States in fixed ratios (e.g. 90:10, 75:25, 60:40)
Implementation	Implemented directly by Central Government machinery or its agencies	Implemented by State/UT Governments
Subject Area	Based mainly on subjects under the Union List	Based on subjects under the State List
Financial Transfer	No funds are transferred to States; expenditure made by the Centre	Funds are transferred to States for implementation
Objective	To execute programmes of national importance directly by the Centre	To assist States in implementing welfare and development programmes
Examples	Space Research Programme, Central Armed Police Forces, BharatNet	MGNREGA, National Health Mission, Mid-Day Meal Scheme

Comptroller and Auditor General (CAG)

• About: Established under Article 148 of the Indian Constitution, the CAG heads the Indian Audit and Accounts Department (IA&AD).
  • Governed by the CAG’s (Duties, Powers, and Conditions of Service) Act, 1971, amended in 1976, 1984, and 1987.
  • Considered a key pillar of Indian democracy, alongside the Supreme Court, Election Commission, and UPSC.
• Appointment and Tenure: Appointed by the President of India for a 6-year term or until 65 years of age, the CAG takes an oath of impartiality and may resign by submitting to the President.
• Removal: He can be removed only by the President, following the same procedure as a Supreme Court judge — through a special majority resolution in both Houses of Parliament for proved misbehaviour or incapacity.
• Role and Duties: The CAG, as Parliament’s agent, ensures public funds are used legally, efficiently, and for intended purposes. 
  • It conducts legal, regulatory, and propriety audits to assess legality, economy, and prudence in expenditure. 
  • Unlike the CAG in Britain, India’s CAG acts only as an auditor, not a comptroller. 
• Independence: The CAG can be removed only through a constitutional process, not at the President’s pleasure. 
  • The CAG shall not be eligible for further office either under the Government of India or under the Government of any State after he has ceased to hold his office.

What are the Key Issues Related to Centrally Sponsored Schemes (CSS)?

• Lack of Transparency: A major challenge is the unclear representation of CSS funds in state budgets, where Centre and State shares are not distinctly shown, hindering alignment with broader goals like the SDGs and tracking of total public spending.
  • Inconsistent accounting, overlapping reports, weak monitoring, and poor audits undermine impact assessment.
• Unpredictable Flow of Funds: The flow of funds from the Centre to the States and implementing agencies is often irregular and unpredictable, causing project delays, idle resources, and a rush to spend funds at year-end, which affects quality.
• Inflexible Allocation: Rigid budget allocations prevent states from adjusting funds to local needs, as the “one-size-fits-all” approach overlooks regional disparities.
• Challenges in Payment Systems: Despite Direct Benefit Transfer (DBT) reforms, payment delays persist due to procedural bottlenecks, verification errors, and tech glitches. 
  • Inaccurate beneficiary data, banking issues, and the lack of real-time tracking lead to leakages, grievances, and poor accountability.

What Reforms are Needed to Improve the Effectiveness of CSS?

• Unified & Transparent Budget Headings: Adopt a standardized budget structure for all CSS to clearly show Central and State shares. Mandate SDG-linked budgeting to align expenditures with specific development outcomes.
• Forward-Looking Funding: Inform states of annual allocations in advance, adopt a 3-year rolling fiscal framework for major CSS, and link 10–15% of funds to performance indicators to ensure better planning, project continuity, and result-oriented implementation.
  • Cooking cost provisions under schemes like Midday Meal and PM-POSHAN should be WPI-indexed and revised biennially.
• Standardized Accounting Codes: Develop a National Accounting Template for CSS with uniform classification codes across states to enable data consolidation, inter-state comparison, and a clear audit trail for the CAG.
• Mandatory Integration with State IFMIS: Integrate all CSS transactions with State Integrated Financial Management and Information System (IFMIS) for accurate accounting while maintaining an Aadhaar-linked beneficiary database.
  • Enable authentication and grievance redressal through Common Service Centers (CSCs). 
• Leveraging Technology for Efficiency: Leverage AI and data analytics to track fund flows, detect anomalies, and predict spending trends, while enabling officials to record expenditures and progress through mobile-based real-time monitoring.

Conclusion

The CAG's committee marks a critical step towards reforming CSS financial governance. By addressing opaque budgeting, fragmented accounting, and inefficient payments, it aims to enhance transparency, ensure predictable fund flow, and strengthen outcome-oriented expenditure, ultimately improving the efficacy of massive public spending for national development goals.

Drishti Mains Question:

Q. Examine the challenges in the implementation of Centrally Sponsored Schemes (CSS) and suggest institutional reforms to improve fiscal transparency and service delivery.

Frequently Asked Questions (FAQs)

1. What are Centrally Sponsored Schemes (CSS)?

CSS are jointly funded Centre-State programmes implemented by states to supplement state efforts in concurrent and state subjects, routed through the Consolidated Fund of the State.

2. What constitutional role does the CAG play in auditing Centrally Sponsored Schemes (CSS)?

As the supreme audit institution of India established under Article 148, the CAG's role is to conduct legal, regulatory, and propriety audits of CSS expenditures to ensure legality, efficiency, and prudence in the use of public funds.

3. How do Centrally Sponsored Schemes (CSS) differ from Central Sector Schemes?

CSS are jointly funded by the Centre and States and implemented by states, while Central Sector Schemes are fully funded and directly implemented by the Central Government.

UPSC Civil Services Examination, Previous Year Question (PYQ)

Prelims

Q. In India, other than ensuring that public funds are used efficiently and for intended purpose, what is the importance of the office of the Comptroller and Auditor General (CAG)? (2012)

1. CAG exercises exchequer control on behalf of the Parliament when the President of India declares national emergency/financial emergency
2. CAG reports on the execution of projects or programmes by the ministries are discussed by the Public Accounts Committee.
3. Information from CAG reports can be used by investigating agencies to press charges against those who have violated the law while managing public finances.
4. While dealing with the audit and accounting of government companies, CAG has certain judicial powers for prosecuting those who violate the law.

Which of the statements given above is/are correct? 

(a) 1, 3 and 4 only 

(b) 2 only  

(c) 2 and 3 only 

(d) 1, 2, 3 and 4 

Ans: (C)  

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Mains

Q1. “The Comptroller and Auditor General (CAG) has a very vital role to play.” Explain how this is reflected in the method and terms of his appointment as well as the range of powers he can exercise. (2018) 

Q2. Exercise of CAG’s powers in relation to the accounts of the Union and the States is derived from Article 149 of the Indian Constitution. Discuss whether audit of the Government’s policy implementation could amount to overstepping its own (CAG) jurisdiction.(2016)