Many government schemes weaken fiscal federalism.

A Reserve Bank of India (RBI) report on state expenditure says that many of the central government schemes weaken the spirit of cooperative fiscal federalism and reduce the spending flexibility of the state government.

The central bank report said rationalizing Centrally Sponsored Schemes (CSS) could free up budgetary space to meet state-specific expenditure requirements and reduce the financial burden on governments. The disbursement under the central scheme was between Rs 11,000 crore and Rs 15,000 crore in the first two years of 2020-21 and 2021-22. It increases to Rs 81,195 crore in 2022-23 and thereafter to Rs 1,09,523 crore. The share of these loans in the capital expenditure of the United States in 2023-24 was 14.4 percent. Even after the Center excludes these interest-free loans, capital expenditure of states has continued to rise since 2021-22. The Union Budget for 2024-25 increased the allocation under long-term interest-free loans to states to Rs 1.5 lakh crore in 2024-25. Which was Rs 1.3 lakh crore last year. Furthermore, the Center has proposed to launch Purvodaya Scheme. Its objective is the overall development of the eastern states of Bihar, Jharkhand, West Bengal, Odisha and Andhra Pradesh. Stead further said that the persistently high levels of sub-national debt of states demands a credible roadmap for debt consolidation.