States all aboard, it'll be an interest saver

Administrative reforms in expenditure on centrally sponsored schemes and projects have delivered big savings on interest payments. This contributes to the overall effort to reduce fiscal deficit. Finmin is justified in seeking wider coverage of the single nodal agency (SNA) system for transferring funds to states. SNA is transparent in that funds are debited into specific accounts only at the stage they're needed. This improves scheme and project monitoring. More importantly, SNA corrects against money idling in accounts and, thus, reduces the interest bill. Finally, it generates a wealth of data that can inform public policy. Alongside tech-assisted tax collection that has improved buoyancy, expenditure management has been an underrated piece of reform in government finances.

Centrally sponsored schemes are key to making India's growth more inclusive, and to ensure development is regionally balanced. Role of the Centre is subsidiary, but critical in ensuring equalisation of services, such as healthcare, nationwide. There is a need to whittle down the number of schemes to make them more impactful and improve monitoring of outcomes, instead of processes. Other issues remain such as upfront and stable funding, bilaterally agreed outcome compacts with states, and credible information flow on output indicators. These are substantively bigger reforms involving CSS and are inclined to be more protracted. The Centre has, however, made considerable progress with less arduous administrative reforms in this area.

There is much ground to be covered, though, on improving states' absorptive capacity. The big hurdle in co-sponsored development remains getting states on board about the pace of change.