Centrally Sponsored Schemes Take ₹5.49 Lakh Crore of the 2026-27 Union Budget, About a Fifth of What the Centre Sends the States, and 50 of the 81 Had Moved to Just-in-Time Release by December 2025

The Union Budget for 2026-27 sets aside ₹5,48,798 crore (₹5.49 lakh crore) for centrally sponsored schemes, according to Statement 4A of the Finance Ministry’s Expenditure Profile, one of the explanatory papers that come with the Budget. That is 10.3 per cent of the ₹53,47,315 crore the Centre plans to spend through the Budget, and about a fifth of the ₹25,43,769 crore that the Budget at a Glance counts as total resources transferred to the states, a figure that includes the states’ share of central taxes.

A centrally sponsored scheme is a programme that both governments fund and the states carry out. The same statement lists Jal Jeevan Mission for piped water (₹67,670 crore), Pradhan Mantri Awas Yojana, Rural, for housing (₹54,917 crore) and Samagra Shiksha for schools (₹42,100 crore). The Department of Expenditure’s own orders, from 2021 to 2025, show how a central rupee reaches a vendor. Our guide to how a Budget is passed covers the papers around it.

What makes a scheme centrally sponsored

The Budget’s own definition, in the statement on fund balances, is a scheme funded by both the Centre and the states in an approved sharing pattern and implemented by the states. The Key to the Budget Documents sorts all spending into two groups. One is the Centre’s own expenditure, which includes central sector schemes (₹17,71,928 crore in 2026-27). The other is transfers to states and Union Territories, which has three parts: centrally sponsored schemes, Finance Commission grants and other grants and loans.

The constitutional basis is Article 282, in force since 26 January 1950. It lets the Union or a state make grants for any public purpose, even a purpose on which Parliament or the state legislature has no power to make laws. The Sixteenth Finance Commission’s report names three channels of money from the Centre: the share of taxes under Article 270, grants under Article 275(1), and the discretionary grants under Article 282 that flow mainly through these schemes. The Commission says it has no role in deciding their nature or size. Our guide to the three lists of the Seventh Schedule shows which subjects belong to which government.

Before 2014-15 the Centre sent the money for certain schemes straight to implementing agencies. From that year it began routing it through each state’s Consolidated Fund, which the Commission gives as the reason state revenues and grants jumped on paper in 2014-15.

Who pays what, and where 60:40 and 90:10 came from

The Governing Council of NITI Aayog, at its first meeting on 8 February 2015, set up a sub-group of Chief Ministers on these schemes. It examined 66 of them and recommended that the total not exceed 30. The Union Cabinet accepted its main recommendations, and the Prime Minister’s Office published the decision on 3 August 2016.

The decision sorted schemes into three kinds, with a sharing ratio for each:

• Core of the core schemes, those for social protection and inclusion such as the National Social Assistance Programme, kept their existing pattern.
• Core schemes became 90:10 (Centre to state) for the eight northeastern states and three Himalayan states, 60:40 for other states, and fully Centre-funded for Union Territories without a legislature.
• Optional schemes, which states may choose to run, became 80:20 for those eleven states and 50:50 for the rest.

The same decision raised the flexi-fund, the part of a scheme’s yearly allocation that can be tuned to local needs, from 10 per cent to 25 per cent for states and 30 per cent for Union Territories.

The Sixteenth Finance Commission links the 60 per cent to an earlier decision. The Fourteenth Commission raised the states’ share of the divisible pool of central taxes from 32 to 42 per cent for 2015-16 onward, and the Union responded by bringing its share in most of these schemes down to 60 per cent for states outside the northeast and the Himalayas. Our piece on the Finance Commission covers the tax share itself.

The 2021 rules: one account per scheme and a clock on the state’s share

In the Budget speech of 1 February 2021 the Finance Minister said that, on the Fifteenth Finance Commission’s recommendation, the Government had undertaken a detailed exercise to rationalise and reduce the number of these schemes. The Sixteenth Commission later counted more than 80 in operation, run by more than 20 ministries and costing about 1.5 per cent of GDP a year. It also noted that the five-yearly review of schemes had not closed any of them.

The change that reshaped how the money moves came in an Office Memorandum of 23 March 2021, issued after the Department of Expenditure circulated a draft to the states on 16 December 2020. From 1 July 2021, each state names a Single Nodal Agency for every scheme, which opens one account in a scheduled commercial bank. Agencies further down draw on it through zero-balance subsidiary accounts. The Centre’s share goes first to the state’s account at the Reserve Bank and then to that nodal account.

The order set clocks. The Centre releases no more than 25 per cent of a state’s yearly amount at the start, and the next instalment follows only after the state’s share is paid in and at least 75 per cent of earlier releases is used. The state had 21 days to pass on the central share and 40 days for its own. A memorandum of 16 February 2023 changed that to 30 days for both and charged 7 per cent a year on the central share for each day of delay from 1 April 2023. Interest earned on idle balances must be returned to the Consolidated Funds.

Money spent outside the system is caught by software. A memorandum of 2 December 2022 explains that spending straight from a treasury or from a non-nodal account creates a “deficit” in the Public Financial Management System (PFMS), a web-based fund-flow and payment system run by the Controller General of Accounts since 2009, and that deficit stops further releases to the state. The memorandum offered a one-time exemption for past cases.

SNA-SPARSH: the Centre pays when the bill arrives

The nodal-account model still left money sitting in bank accounts. The Budget document says bulk releases left funds idle outside both Consolidated Funds and caused cash mismatches in the Reserve Bank’s books, which were bridged with short-term borrowing. Because both governments borrow to finance their schemes, it adds, idle balances cost interest.

The Department of Expenditure’s letter of 13 July 2023 introduced the alternative, SNA-SPARSH, citing a rule in the General Financial Rules that payments should follow the principle of just-in-time release. The steps in the letter run as follows:

1. At the start of the year the central ministry creates a “mother sanction” in PFMS for each state, which is that state’s drawing limit for the scheme.
2. When a vendor or beneficiary is to be paid, the state’s agency raises a payment file in the state’s financial management system, and the treasury consolidates the files.
3. The treasury sends the consolidated file to PFMS, and the ministry sanctions the central share against it. Files received by 3 pm are processed the same working day.
4. The central share moves from the Centre’s drawing account at the Reserve Bank to the state’s account, and the Reserve Bank pays the vendors and beneficiaries named in the file.

The letter says the funds stay in the Consolidated Funds until that moment and may not be diverted to any other account. Where a state adds a top-up of its own, the Centre’s share is not calculated on it.

The Budget document records the rollout. It began in August 2023 with six states (Rajasthan, Odisha, Karnataka, Telangana, Jharkhand and Chhattisgarh) and two schemes. A Department of Expenditure letter of 10 June 2025 added 37 schemes from 1 July 2025 and said all schemes would use SNA-SPARSH from 1 November 2025. The Budget document says 81 schemes were notified and 50 had made at least one payment through it by 31 December 2025. The other 29 notified schemes, among them Samagra Shiksha, PM POSHAN and Jal Jeevan Mission, had made no payment through it yet, and two schemes that reimburse states after the fact are exempt.

Pradhan Mantri Awas Yojana, Rural, shows the early picture. Twelve states had joined, the Centre had issued mother sanctions of ₹16,538 crore, and states had used ₹2,309 crore of that by 31 December 2025. For the 2025-26 schemes with outlays above ₹500 crore, the Centre had released ₹2,08,380 crore by that date. Nodal accounts then held ₹43,636 crore and state treasuries ₹25,324 crore of scheme money, central and state shares together, ₹68,960 crore in all.

Grants that do not come through schemes

Not all transfers are schemes. Statement 18 puts all transfers to states and the Union Territories with a legislature in 2026-27, apart from the tax share, at ₹10,94,514 crore, loans included. Its two scheme lines add up to ₹5,33,945 crore, about half. Finance Commission grants take ₹1,29,397 crore, made up of ₹1,01,181 crore for rural and urban local bodies and ₹28,216 crore for state disaster funds. Article 280(3) tells the Commission to recommend the principles for grants-in-aid, and Article 275(1) charges them to the Consolidated Fund.

A proviso to Article 275(1) sits outside the Commission. It requires the Centre to pay a state whatever is needed for development schemes, approved by the Government of India, that improve Scheduled Tribe welfare and Scheduled Area administration, and a second proviso gives Assam a further payment for its tribal areas. These grants were ₹1,170.57 crore in 2024-25, in Statement 4D.

Statement 18 also lists ₹1,85,000 crore of special assistance as loans for capital investment. Article 293(2) lets the Government of India lend to states, and our piece on state budgets covers what Article 293 says about the states’ own borrowing.

Where the Union and the states differ

The Sixteenth Finance Commission set out both positions. The Union’s memorandum, it says, treats these schemes as the channel for national development priorities. Some states, among them Tamil Nadu, Karnataka and West Bengal, asked for consolidation of the schemes, a bigger Union share and untied grants in place of tied ones, linking the request to conditions in fields on the State List. The Commission kept the arrangement. It said changes to the schemes are the Union’s prerogative under Article 282 and declined to replace them with higher tax devolution, a swap that none of the states had asked it for. It added that it was sympathetic to giving states more choice among schemes, and recommended a high-powered committee to close schemes that spend poorly.

The latest case is rural employment. Under MGNREGA the Centre paid the whole wage bill, according to PRS Legislative Research’s summary of the Bill as introduced in December 2025. The Bill made the replacement scheme centrally sponsored with a 60:40 split, or 90:10 for the northeastern and Himalayan states, and state-wise allocations set by the Centre, with states paying any excess. The resulting Act, No. 36 of 2025, took effect on 1 July 2026 under a Gazette notification of 11 May 2026. The Government’s backgrounder says allocations will follow objective parameters to spread resources fairly. The Tamil Nadu Assembly resolved on 23 January 2026 against the rise in its share to about 40 per cent, South First reports. Statement 4A carries both lines for 2026-27, ₹30,000 crore for MGNREGA and ₹95,692 crore for VB-G RAM G.

The Government’s memorandum on the Commission’s report, laid on 1 February 2026, says of the committee proposal only that “The Government will examine these recommendations of the Commission in due course.”