Madhya Pradesh Economy

Central Flows to Panchayats

A Comparative Study of Madhya Pradesh
Central flows to panchayati raj institutions consist of assistance through centrally sponsored
schemes, and transfers based on recommendation of Central Finance Commissions. The
CSS are of two types, one routed through state government budgets, and the other
bypassing state budgets. The paper quantifies these and identifies the components of the second
going to panchayati raj institutions. For Madhya Pradesh and other major states, the paper
provides per capita estimates of CSS releases to the PRIs for 2004-05 and 2005-06.
C BHUJANGA RAO, MANISH GUPTA, PRATAP RANJAN JENA

T
he transfer of resources from the centre to the states is
made on the basis of the recommendations of Central
Finance Commissions, plan grants by the Planning Com-
mission and centrally sponsored schemes (CSS) of various
ministries and departments. Some of these resources in the form
of financial assistance through various CSS and transfers based
on the recommendation of Central Finance Commissions are
directed towards panchayati raj institutions (PRIs). Following the
73rd amendment to the Constitution PRIs have assumed greater
significance and were entrusted with the task of implementing
many of the poverty alleviation programmes. The present study
quantifies the CSS going to the states and identifies the com-
ponents reaching the PRIs. For Madhya Pradesh and other major
states, it provides per capita estimates of CSS releases to the PRIs
for the years 2004-05 and 2005-06, and a scatter of that against
per capita GSDP. It further examines the utilisation of funds by
the PRIs under some of the important CSS in Madhya Pradesh.
The plan of the paper is as follows; Section I looks into the
nature of CSS going to the states and identifies those reaching
the PRIs and quantifies them. Section II examines the state
specific CSS flows to PRIs in Madhya Pradesh and provides a
comparative picture with the other major states. Concluding
remarks are given in Section III.
I of the various government ministries/departments.1 Scheme-
Centrally Sponsored Schemes
The vertical imbalance that exists in the finances of the central
and state governments is addressed through the transfer of share
in central taxes based on the recommendations of the Central
Finance Commission, and grants to the states. The states also
receive central assistance for their plans in the form of block/
unconditional grants (normal central assistance) from the Plan-
ning Commission. The CSS form part of the central plan as they
are meant to provide additional resources to the states for imple-
menting programmes that are considered by the government of
India to be of national/regional importance. The transfers under
the CSS pertain to subjects that are under state domain. Over
the years, the CSS has become an important tool of the central
government to influence policies and expenditures on subjects
constitutionally allocated to the states. Such proliferation of CSS
over the years has reduced the flexibility of state governments
in prioritising their expenditure pattern.
The CSS are designed by the central ministries and the outlay
and nature of the individual schemes is determined by the pro-
visions and guidelines attached to the respective schemes. Many
CSS have a requirement of matching contribution from the state
governments. The funds to the states under the CSS are routed
in two ways. Some of them are designed to be routed only through
state budgets while others bypass the state budget. However, a
clear classification of all these schemes into these two categories
is not available from the central budget. A set of CSS budgeted
under the specific account head 3,601, which refers to grants-
in-aid to state governments are routed only through state budgets.
The outlays for the others are provided under specific heads of
different ministries/departments. These CSS may either be routed
through the state budget or through districts authorities, state level
registered societies, and local bodies bypassing the state budget.
From the budgetary provisions for the CSS, it is not explicit
whether or not they bypass the state budget. The separation of
CSS schemes into two streams was done with the help of the
central budget, outcome budget and detailed demands for grants
wise outlays of the ministries/departments are given in the
Expenditure Budget and in the detailed demand for grants from
which CSS going through the state budget (account head 3,601)
are identified and quantified. Scrutinising all the state sector
schemes and their outlays from the outcome budget of each central
ministry/department helped us in identifying and quantifying the
schemes that are going through the state budget and those bypassing
it. Under each of these CSS, the amounts going to the north-
eastern states are given under a separate budget head (account
head 2,552). These figures were incorporated to arrive at the
scheme specific amounts.
CSS bypassing the state budget go through various imple-
menting agencies like districts authorities, state/district level

Economic and Political Weekly February 3, 2007 365

 Chart: Central Assistance to the States, 2006-07 Figure 1: CSS through State Budget and Bypassing
State Budget
CentralAssistance
Central Assistance States
states @
@RsRs90,724.98
90,724.98 crore
crore CSS through State
(2.33 per
(2.33 per cent of GDP)
of GDP) Budget 40.45 per cent

PRIs
Centrally Sponsored Schemes
34.91
Centrally Sponsored Schemes Twelfth
Twelfth Finance Commission
Finance Commission
(195 per cent
(195 Schemes)
schemes) Grants
Grants payable to states
payable to states
Rs
Rs61,318.48 crore
61,318.48 crore Rs
Rs29,406.50 crore
29,406.50 crore
(1.57
(1.57 per
per cent of GDP)
cent of GDP) (0.75
(0.75 per
per cent of GDP)
cent of GDP)

CSS through State Budget CSS Bypassing State Budget Others

CSS through State Budget CSS By-passing State Budget
(154 Schemes) (41 Schemes) 24.64
(154 Schemes) (41 Schemes) CSS bypassing State
Rs Rs 36,516.20 crore
Rs 24,802.28 crore
24,802.28 crore Rs 36,516.20 crore Budget 59.55 per cent per cent
(0.54 (0.94 per cent of GDP)
(0.64 per cent of
per cent of GDP)
GSP) (0.94 per cent of GDP)

CSS reaching
reaching PRIs
PRIs CSSreaching
CSS reaching other
other
(10
(10 Schemes)
Schemes) agencies
agencies
Rs 21,407.90 crore
21,407.90 crore (31 Schemes)
(31 Schemes)
Rs15,108.30
15,108.30 crore
crore
(of which NREGS
NREGS Rs
Rs
Rs 11,300 crore)
11,300 crore)
Notes: @ Excludes Central Assistance to State Plans.
(1) PRIs include DRDA which manages the funds received under different
poverty alleviation programmes to be implemented by the PRIs.
(2) We have assumed that 75 per cent of the funds under MPLADS are
spent in the rural areas and PRIs are the preferred implementing
agencies.
(3) Using the trend growth rate (10.296 per cent) for the period the new
GDP base was projected for 2006-07 which amounts to Rs 38,95,071
crore.
(4) We have assumed that the entire funds under NREGS go to PRIs.
registered societies, and local bodies. However, it is not possible
to identify the final recipients of these CSS from the budget
documents, detailed demand for grants or the outcome budgets.
This was done by examining the detailed guidelines of all these
schemes. These CSS are then grouped into those going to the
PRIs/district rural development agency (DRDA) and those going
to other agencies like districts authorities and state/district
level registered societies. CSS routed through the state budget
and going to PRIs can be identified from the respective state
government budgets and form part of the overall state assistance
to PRIs.
After identifying the CSS bypassing the state budget and the
final recipients of these, they have been quantified for the
year 2006-07 using central budget documents and the detailed
demands for grants of each ministry/department. From the budget
documents for the year 2006-07 a total of 195 CSS have been
identified of which 41 bypass the state budget and the remaining
154 are routed through the state budgets (Annexures 1 and 2).
In 2006-07 total CSS flow to the states amounted to Rs 61,318.48
crore as can be seen from the chart, which gives details of
the central flow to the states in the form of assistance through
CSS and transfers based on recommendations of the Central
Finance Commission. The CSS going through the state
budget amounted to Rs 24,802.28 crore and those bypassing
the state budget amounted to Rs 36,516.20 crore in the year
2006-07.
Out of the 41 schemes bypassing the state budgets 10 schemes
amounting to Rs 21,407.90 crore in 2006-07 have been identified
as reaching the PRIs, as can be seen from Table 1. These are
Sampoorna Grameen Rozgar Yojana (SGRY), National Food for
Work Programme (NFFWP), Swarnjayanti Gram Swarozgar
Yojana (SGSY), Indira Awaas Yojana (IAY), National Rural
Employment Guarantee Scheme (NREGS).2 Integrated Waste-
lands Development Programme (IWDP), Drought Prone Areas
Programme (DPAP), Desert Development Programme (DDP),
Central Rural Sanitation Programme (CRSP) and Member of
Parliament Local Development Scheme (MPLADS).3
The proportion of total CSS funds routed through the state
budget and those bypassing it is illustrated in Figure 1. The CSS
funds bypassing the state budget constitutes 59.55 per cent of
total CSS funds in the year 2006-07 and 34.91 per cent of total
CSS funds go directly to the PRIs/DRDA. Thus, from the above
discussion it is clear that a larger proportion of CSS funds
bypass the state budgets and a sizeable part of it goes directly
to the PRIs.
II
CSS Fund Flow to PRIs in Madhya Pradesh
In the earlier section, we identified the CSS under which funds
reach PRIs bypassing the state budgets. In the chart we indicated
the total amount going to PRIs under these schemes. However,
the state-wise allocation is not based on any predetermined
formula. In order to get state specific figures for the CSS fund
reaching the PRIs, we have in this paper concentrated on eight
major schemes that account for 91 per cent of the total CSS fund
Table 1: Centrally Sponsored Schemes Reaching PRIs
(In Rs crore)
Sl Schemes 2006-07
No (BE)
1 Sampoorna Grameen Rozgar Yojana (SGRY) 3000
2 National Food for Work Programme (NFFWP) 0
3 Swarnjayanti Gram Swarozgar Yojana (SGSY) 1200
4 Indira Awaas Yojana (IAY) 2920
5 National Rural Employment Guarantee Scheme (NREGS) 11300
6 Integrated Wastelands Development Programme (IWDP) 453
7 Drought Prone Areas Programme (DPAP) 360
8 Desert Development Programme (DDP) 270
9 Central Rural Sanitation Programme (CRSP) 720
10 Member of Parliament Local Development Scheme
(MPLADS) 1185
Total 21408
Sources: (1) Expenditure Budget 2006-07, Vols 1 and 2, Ministry of Finance,
GoI, 2006.
(2) Detailed Demand for Grants, various ministries for 2006-07,
GoI, 2006.

366 Economic and Political Weekly February 3, 2007

 Figure 2a: Scatter Plot of Per Capita Releases and The higher utilisation percentage under NFFWP in 2005-06
Per Capita GSDP, 2004-05 was due to the inclusion of NREGS amounts in the utilisation
400
JJH
H
figure.
Madhya Pradesh is a relatively poor state having a per capita
Per Capita Releases (2004-05) (Rs)

350
GSDP of Rs 16,356.88 in 2005-06 and a rural poverty ratio of
300 B ih a r O ris s a
Orissa 37.06 per cent as per 1999-2000 Planning Commission estimates.
250 The total per capita releases under the various CSS for poverty
Chh
C hh
alleviation reaching PRIs in Madhya Pradesh were Rs 176.59
200 M
MPP TN
Mah in 2004-05 and increased to Rs 227.29 in 2005-06. Table 3 gives
150 UP
UP AKPa r
WB
a comparative picture of total per capita CSS releases to PRIs
RRaj
aj G uj
K er H ar
for 2004-05 and 2005-06 for 17 major states. From the Table
100 G oa
3 we can see that in 2005-06 Jharkhand received the highest per
50 P unj capita releases while Punjab the lowest.
From Table 3 one can see that the poorer states like Jharkhand,
0
0 10000 20000 30000 40000 50000 60000 70000 80000 Bihar and Orissa receive the highest per capita amount as com-
Per Capita GSDP (2004-05) (Rs) pared to richer states like Punjab, Goa, and Haryana, which
Figure 2b: Scatter Plot of Per Capita Releases and
receive the lowest. This inverse relationship becomes more evident
Per Capita GSDP, 2005-06 when we compare per capita releases with the per capita GSDP
500
JJH
H across the major states. Figures 2a and 2b give the scatter plot
of per capita releases and per capita GSDP for the years 2004-
Per Capita GSDP (2005-06) (Rs)

400
05 and 2005-06 respectively. States which have a relatively
Orissa
O ri ssa
higher per capita GSDP receive relatively lower per capita funds
Chh
Ch h
and vice versa. However, there is a large variation in per capita
300 releases of CSS funds for some of the poorest states as can be
Bihar
MP
MP
seen from the dotted band in Figures 2a and 2b. For the poorest
200
AP TN states like Jharkhand, Orissa, Chhattisgarh, Madhya Pradesh,
M ah
WB
Kar Guj
Uttar Pradesh and Rajasthan, which do not have wide variation
UP
UP
Raj
Ra j
Ker Ha r Table 3: Per Capita CSS Releases
100 Goa
(In Rupees)
Punj

States 2004-05 2005-06

0
0 10000 20000 30000 40000 50000 60000 70000 80000 90000 Jharkhand 360.01 475.16
Per Capita GSDP (2005-06) (Rs) Orissa 270.04 368.91
Chhattisgarh 222.45 303.21
Bihar 275.08 240.86
flows to the PRIs in 2006-07. These are SGRY, NFFWP, NREGS, Madhya Pradesh 176.59 227.29
SGSY, IAY, IWDP, DPAP and DDP. We have confined our Andhra Pradesh 143.92 198.31
analysis to these eight schemes for the years 2004-05 and Tamil Nadu 175.75 193.04
Maharashtra 165.11 174.81
2005-06 only because of the unavailability of state-wise data West Bengal 124.70 166.05
for these schemes for 2006-07.4 Karnataka 144.58 150.98
In 2004-05 and 2005-06 PRIs in Madhya Pradesh have received Gujarat 108.13 148.61
CSS funds comprising of both central and state releases under Uttar Pradesh 141.08 138.83
Rajasthan 101.17 122.74
seven schemes as reported in Table 2. Total releases under these Haryana 84.96 93.32
schemes in 2005-06 were Rs 1,105.24 crore out of which the Kerala 92.03 93.24
central share was Rs 1,012.68 crore. As regards utilisation of Goa 78.78 78.27
Punjab 40.67 50.52
available CSS funds, except for NFFWP, the per cent utilisation
in 2005-06 was much lower as compared to that in 2004-05. Source: Annual Reports of Ministry of Rural Development, GoI.

Table 2: Releases and Utilisation of CSS Funds in MP

(In Rs crore)

Schemes 2004-05 2005-06

Central Releases State Releases Total Releases Utilisation Central Releases State Releases Total Releases Utilisation
(Per Cent) (Per Cent)

SGRY 287.14 101.31 388.45 93.30 287.87 57.24 345.12 57.77

SGSY 55.16 16.84 72.00 92.87 55.43 11.00 66.43 58.76
IAY 105.95 35.32 141.26 92.91 95.92 24.31 120.23 82.43
NFFWP 158.08 - 158.08 42.92 339.09 - 339.09 73.63
IWDP 29.06 - 29.06 - 48.99 - 48.99 -
DPAP 52.88 - 52.88 - 48.24 - 48.24 -
NREGS - - - - 137.14 - 137.14 -
Total 688.27 153.47 841.74 - 1012.68 92.56 1105.24 -

Notes: (1) Utilisation refers to expenditure as per cent of total fund availability (total releases + opening balance).
(2) Utilisation under NFFWP in 2005-06 includes NREGS.
Source: Annual Reports of Ministry of Rural Development, GoI.

Economic and Political Weekly February 3, 2007 367

 Annexure 1: CSS Going through the State Budgets in per capita GSDP – their per capita GSDP figures are confined
(in Rs crore)
in a very narrow range represented by the shaded band – show
Sl Departments 2006-07 BE substantial variations in terms of per capita releases. The per
No capita releases vary from Rs 122.74 for Rajasthan to Rs 475.16
1 Agriculture and cooperation (29) 3543.15 for Jharkhand in 2005-06.
2 Department of animal husbandry and dairy (20) 343.91 Thus from the above analysis of CSS funds reaching PRIs, one
3 Ministry of agro and rural industries (1) 0.10 can infer that there is a inverse relationship between per capita
4 Ministry of civil aviation (1) 0.05 releases and per capita GSDP, but for the poorest states whose
5 Department of consumer affairs (1) 49.50 per capita GSDP lie within a very narrow range such a relationship
6 Ministry of culture (1) 0.60
does not hold good as there are huge variations in per capita
7 Ministry of environment and forests (10) 908.71
8 Department of health (13) 1536.32
releases.
9 Department of AYUSH (4) 175.20
10 Department of family welfare (3) 3151.63 III
11 Department of elementary education (3) 2908.46 Conclusion
12 Department of secondary education (9) 260.41
13 Department of women and child development (3) 4508.89 Scrutiny of the budgets of all the ministries/departments of
14 Ministry of labour (3) 81.20 the central government reveals that 195 CSS are in operation in
15 Ministry of law and justice (1) 42.60
2006-07 and a large proportion of the total CSS funds are
16 Ministry of non-conventional energy resources (2) 23.06
17 Ministry of panchayati raj (1) 0.00
routed bypassing the state government budgets and a sizeable
18 Ministry of planning (1) 3.00 part of it goes directly to PRIs. This paper identified and
19 Department of rural development (1) 5.50 quantified reaching PRIs. Considering some of the major CSS
20 Department of land resources (4) 165.10 reaching the PRIs, an inverse relationship was found to exist
21 Department of drinking water supply (1) 3585.00 between per capita CSS release and per capita GSDP for
22 Ministry of shipping (2) 13.20 Madhya Pradesh and other major states. But for the poorest states
23 Department of road transport and safety (2) 64.00
whose per capita GSDP lie within a very narrow range such a
24 Ministry of small-scale industries (1) 4.00
25 Ministry of social justice and empowerment (8) 1094.46
relationship does not hold good as there is huge variation in per
26 Ministry of statistics and programme implementation (1) 6.30 capita releases. EPW
27 Ministry of textiles (5) 109.99
28 Ministry of tribal affairs (5) 221.85 Email: cbrao@nipfp.org.in
29 Department of urban development and works (7) 1282.00
30 Ministry of urban employment (5) 402.00 Notes
31 Department of water resources (3) 282.68
32 Ministry of youth affairs and sports (3) 29.41
1 This is based on the methodology given in Garg (2006).
Total CSS going through state budgets (154) 24802.28
2 Under NREGS the programme officer or the district programme officer
Note: Figures in parenthesis refer to the number of schemes. will allot at least 50 per cent of the works in terms of the costs to the
Sources: (1) Expenditure Budget 2006-07, Vols 1 and 2, Ministry of Finance, gram panchayat for execution. This is the statutory minimum but the
GoI, 2006. concerned officer can allot more if deemed feasible. The intermediate
(2) Detailed Demand for Grants, various ministries for 2006-07, and district panchayats can also be given the responsibility of executing
GoI, 2006. works from among the 50 per cent that are not to be executed by
the gram panchayat. Additionally, line departments of the government,
public sector undertakings of the central and state governments, cooperative
Annexure 2: CSS Bypassing State Budgets societies, NGOs, self-help-groups can also be the implementing agencies.
(in Rs crore) In this paper we have assumed that the entire fund under NREGS goes
to PRIs.
Sl Departments 2006-07 BE
3 It has been assumed 75 per cent of the funds under the MPLADS are spent
No
in rural areas and PRIs are the preferred implementing agencies.
1 Department of agriculture and cooperation (2) 500.00 4 For 2004-05 the analysis does not include NREGS which was launched
2 Ministry of agro and rural industries (1) 324.98 on February 2, 2006.
3 Department of family welfare (1) 1491.01
4 Department of elementary education (9) 4715.63 Reference
5 Department of women and child development (1) 2.00
6 Ministry of labour (1) 127.46 Garg, S C (2006): State Sector Plan Grants by Centre (mimeo).
7 Ministry of non-conventional energy resources (7) 283.55
8 Department of rural development (8) 23934.17
9 Department of land resources (5) 1162.90
10 Department of drinking water (2) 2334.00
11 Ministry of social justice and empowerment (1) 33.00
Economic and Political Weekly
12 Ministry of statistics and programme implementation (1) 1580.00
13 Ministry of tribal affairs (2) 27.50 Available from
Total CSS bypassing state budgets (41) 36516.20
Star News Agency
Note: Figures in parenthesis refer to the number of schemes. Mahendra Chambers,
Sources: (1) Expenditure Budget 2006-07, Vols 1 and 2, Ministry of Finance,
GoI, 2006.
Magazine Market, 146, D N Road,
(2) Detailed Demand for Grants, various ministries for 2006-07, Mumbai - 400 001
GoI, 2006.

368 Economic and Political Weekly February 3, 2007