On fund transfers from Union to the states, let’s unblock last-mile flows
360° Perspective Analysis
Deep-dive into Geography, Polity, Economy, History, Environment & Social dimensions — AI-powered, on-demand
Context
The article analyzes the effectiveness of recent public financial management reforms in India, specifically concerning Centrally Sponsored Schemes (CSS). Despite the introduction of the SNA-SPARSH system in 2024 to create a Just-in-Time (JIT) fund release mechanism, the utilization of funds at the state and local levels remains critically low. This highlights a shift in the core problem from idle funds in bank accounts to procedural and implementation bottlenecks at the last mile.
UPSC Perspectives
Governance
The evolution from traditional fund transfers to the Single Nodal Agency (SNA) model (2021) and now to SNA-SPARSH (2024) represents a significant push towards e-governance and transparency in public finance. SNA-SPARSH, or the System for Payments and Reporting Across Sectors Holistically, creates a 'just-in-time' fund flow, directly crediting beneficiaries and vendors from the through its e-Kuber platform. This has successfully reduced the 'float' or idle funds, as seen with a drop of 85% in idle funds for in 12 states. However, the article reveals a governance paradox: high-tech financial plumbing does not automatically translate to on-ground outcomes. The low utilization rate (14% in the same states) points to deep-seated procedural rigidities, such as manual verification and multi-level approvals, which are now the main impediment to service delivery. This shows that governance reforms must be holistic, addressing not just financial flows but also the administrative capacity and process re-engineering at the implementation level. UPSC aspirants should analyze this as a case of successful but incomplete reform, where technology has fixed one part of the system, but last-mile execution remains a challenge.
Economic
From an economic perspective, the article highlights the issue of fiscal efficiency and its impact on development outcomes. Inefficient use of allocated funds for Centrally Sponsored Schemes (CSS), which amount to about 1.5% of GDP, has significant costs. The SNA-SPARSH system directly addresses the problem of idle funds, which previously represented a major opportunity cost and added to the government's borrowing costs. By ensuring funds are released only when a payment is due, the system optimizes cash management for both the Centre and states. However, the problem has now shifted from the cost of funds to the velocity of expenditure. Low utilization, as seen in the fact that 38 out of 50 schemes used less than 50% of their allocated sanction by December 2023, means that the intended Keynesian multiplier effect of welfare spending is not being realized. This sluggish spending on schemes like translates into a drag on rural demand, employment (unpaid wages), and capital formation (houses not built). The article implicitly argues for extending digital Public Financial Management (PFM) principles like real-time processing and milestone-linked payments to the entire implementation chain to unlock economic benefits.
Polity
The article touches upon the core tenets of fiscal federalism in India. CSS are a key instrument of federal finance, but their implementation has always been a point of friction between the Centre and States. The reforms from routing funds through State Consolidated Funds (post-2014) to the SNA model and now SNA-SPARSH reflect an evolving architecture of fiscal control and accountability. While SNA-SPARSH enhances the Centre's ability to track funds till the last mile, the low utilization exposes a deeper issue flagged by bodies like the 16th Finance Commission and the CAG—the mismatch between fund allocation and state-level implementation capacity. The article mentions a report on in Tamil Nadu, which details procedural friction. This dynamic is central to Centre-State relations, where states often seek more flexibility and untied funds, while the Centre uses CSS to drive national priorities. The failure to spend despite timely fund availability could shift the debate, potentially leading to calls for more performance-linked fund releases or even a re-evaluation of which schemes should continue, a matter relevant to the .