What is the difference between Central Sector Schemes and Centrally Sponsored Schemes?

The central schemes are divided into central sector schemes and centrally sponsored schemes (CSS).

What is Central Sector Schemes?

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

What is Centrally Sponsored Schemes (CSS)?

Centrally Sponsored Schemes

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. Various central government ministries directly transfer money to the state governments. Implementation of Centrally Sponsored Scheme is made by State/UT Governments.  Centrally Sponsored Schemes are created on areas that are covered under the State List.

Restructuring of the CSS

The CSS have undergone drastic restructuring after the recommendations of the XIV Finance Commission. Higher tax share and devolution from centre to states necessitated transfer of several schemes to the states. In this context, the restructuring of the CSS was a major outcome of the recommendations of the XIV FC. Similarly, states were given more flexibilities on the implementation of projects. Later, the NITI Ayog created Chief Minister’s Panel recommended reduction of number of CSS from 66 to 30. The Panel also grouped these schemes under three heads.

1. Core of the core

2. Core and

3. Optional

Restructuring came into effect from 2016-17 budget onwards. In yet another meeting, the sub group of Chief Ministers, the CSS were reduced to 28. As a follow up, under budget 2017, there were only 28 schemes. Out of these, core of the core were 6, core schemes were 22. A notable development was the shrinking number of optional schemes as such schemes were shifted to states.

Financing of CSS

Centrally Sponsored Schemes are divided into three: core of the core,core and optional. Though each scheme envisages financial participation from the states as well, the state share differs for different schemes. Similarly, geographically difficult states will get higher central share.

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.

As per budget 2017, there are no optional schemes.