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Central Plan Assistance

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Financial assistance provided by Government of India to support State’s Five Year/intervening annual plans is called Central Plan Assistance (CPA) or Central Assistance (CA).

CPA or CA primarily comprises of the following:

(a) Normal Central Assistance (NCA): The distribution of the NCA is formula based (see Gadgil-Mukherjee Formula) and is untied. Gadgil Formula of determining the Central Assistance to the State is being adopted from the fourth five year plan and revised subsequently. Planning Commission makes the allocation and Ministry of Finance, release the funds in 12 Monthly Installments. From 01.04.2015 onwards, there is no allocation under NCA. This is because the 14th Finance Commission (FFC) has substantially enhanced the share of the States in the Central divisible pool from the current 32 % to 42 %, which is the biggest ever increase in vertical tax devolution. FFC recommendations factor in both Plan and Non-plan revenue expenditure of the States and tax devolution is untied. The last two Finance Commissions i.e. 12th FC (2005-10) and 13th FC (2010-15) had recommended increase of 1% and 1.5% respectively. Besides share of central taxes, FFC has recommended grant – in –aid amounting to Rs.5.4 lakh crore over its award period to cover Revenue Deficit of States, local body grants (both to rural and urban local bodies) and grants for augmenting the State’s Disaster Response Fund (SDRF). Seen over the Finance Commission’s award period, there is an increase of about Rs. 25 lakh crore in tax devolution and Rs.2.7 lakh crore in grant-in-aid recommended by the FFC as compared to the 13th Finance Commission. During 2015-16 alone, increase in transfer to States over 2014-15 (both from tax devolution and FFC grants together), is estimated to be about Rs. 2.1 lakh crores.Since NCA was an untied assistance, higher transfer of untied devolution of taxes is expected to take care of no allocation under NCA. From 2015-16 onwards, the allocations under NCA are subsumed in the increased rate of tax devolution.

(b) Additional Central Assistance (ACA):This is provided for implementation of externally aided projects (EAPs), and for which presently there is no ceiling. Unlike NCA, this is Scheme based. The details of such schemes are given in the Statement 16 of the Expenditure Budget Vol. I. There can be One time ACA and advance ACA. One time ACA are assistance given by Planning Commission to particular States for undertaking important State specific programmes and schemes. These are one time assistance and thus not recurring. These assistances are discretionary in nature. Advance ACA are advances given to special category states in times of financial stress and recoverable in ten years.

(c) Special Central Assistance (SCA), which is provided for special projects/programmes e.g., Western Ghats Development Programme (WGDP), Border Areas Development Programme etc. (In exceptional situations, Advance Central Assistance, may also be provided.) This special plan assistance is given only to special category states to bridge the gap between their Planning needs and resources. In other words, SPAs are ACA to special category States. Special Plan Assistance (SPA) is provided to the Special Category States for funding of projects identified by the States that are not covered by any Central scheme and for non-recurrent expenditure of a developmental nature, based on the recommendation of the Planning Commission. From 01.04.2015 onwards, there is no allocation under SPA and SCA (untied).

CPA is provided, as per scheme of financing applicable for specific purposes, approved by Planning Commission. It is released in the form of grants and/or loans in varying combinations, as per terms & conditions defined by Ministry of Finance, Department of Expenditure.

Central Assistance in the form of ACA is provided also for various Centrally Sponsored Schemes viz., Accelerated Irrigation Benefits Programme, Rashtriya Krishi Vikas Yojana etc. and SCA is extended to states and UTs as additive to Special Component Plan (renamed Scheduled Castes Sub Plan) and Tribal Sub Plan. Funds provided to States under Member of Parliament Local Area Development Scheme @ Rs.5 crore per annum per MP also count as CA.

The term Plan Grants generally comprise of 'Block Grants’ which consists of Normal Central Assistance (NCA), Backward Regions Grant Fund (BRGF)- Scheme (State Component), Additional Central Assistance (ACA) for Externally Aided Projects (EAPs), Special Central Assistance (SCA), Special Plan Assistance (SPA), etc.

Since 2015-16, pursuing the recommendations of the 14th Finance Commission, Some of the schemes like NCA, SCA (untied), SPA, Additional Central Assistance for Other Projects (ACAOP), Other ACA, SCA for Hill Areas Development Programme (HADP/WGDP), SCA under Backward Regions Grant Fund (BRGF), National e-governance Plan (Mission mode project) and ACA for Left wing Extremism (LWE) Affected Districts have been discontinued or subsumed under higher devolution of taxes.

In the Union Budget 2016-17 it was stated that the Plan and Non-Plan classification will be done away with from fiscal 2017-18.A broad understanding over the years has been that Plan expenditures are good and Non-Plan expenditures are bad resulting in skewed allocations in the Budget. This is proposed to be corrected to give greater focus to Revenue and Capital classification of Government expenditure.

The Plan/Non-Plan bifurcation of expenditure has led to fragmented view of resource allocation to various schemes, making if difficult not only to ascertain cost of delivering a service but also to link outlays to outcomes. The bias in favour of Plan expenditure by centre as well as the State Governments has led to a neglect of essential expenditures on maintenance of assets and other establishment related expenditures for providing essential social services. The merger of plan and non-plan in the budget is expected to provide appropriate budgetary framework having focus on the revenue and capital expenditure.

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