30 Facts about Grants-in-Aid in India

Here are 30 important and potentially confusing facts about Grants-in-Aid in India, which can help in your UPSC CSE preparation:

1. Grants-in-Aid refer to financial assistance provided by the Central Government to State Governments or other entities for specific purposes, such as development projects or welfare schemes, with the condition that they meet certain criteria or objectives.
2. Article 275 of the Constitution allows the President of India to make grants-in-aid to states that need assistance due to financial constraints or special requirements for development.
3. Grants-in-Aid can be classified into two categories: Plan Grants (for specific development projects) and Non-Plan Grants (for general financial assistance).
4. Plan Grants were allocated based on national development plans, which were approved by the Planning Commission (before its dissolution in 2014). These grants were aimed at financing specific projects and schemes.
5. Non-Plan Grants are meant for meeting regular expenses and supporting financially distressed states, particularly those that cannot meet their expenditure due to lack of revenue resources.
6. The Finance Commission plays a major role in recommending the distribution of grants-in-aid to states, particularly to those in need of assistance due to their low fiscal capacity or high social development requirements.
7. Grants-in-Aid are provided to states that face revenue shortfalls, and they can be utilized for both specific projects and for general expenditures like administrative needs.
8. The Central Finance Commission (CFC), while allocating grants, considers the fiscal health of states, their poverty levels, and backwardness before recommending the amount and nature of grants to be given.
9. Special Category States, such as Assam, Jammu & Kashmir, and Uttarakhand, are entitled to higher or additional grants-in-aid to account for their geographic or economic disadvantages.
10. The 14th Finance Commission (2015) significantly increased the share of states in the divisible pool of central taxes, which reduced the need for grants-in-aid but also created a new mechanism for financial transfers to ensure equity in fiscal relations.
11. Specific Purpose Grants are provided for designated projects or programs, like infrastructure development, health, education, and rural development. These grants have clear terms of use.
12. General Purpose Grants are provided to states to meet their regular expenditure needs, usually in cases where the state’s revenue is insufficient to meet its basic operational costs.
13. Revenue Deficit Grants are a type of grant-in-aid provided by the Finance Commission to states facing a revenue deficit (where the revenue is less than the total expenditure) to help them balance their budgets.
14. Capital Grants are given to support long-term investment projects, such as infrastructure or developmental programs, which have a longer impact on the state’s economy.
15. Disaster Relief Grants are provided to states that have suffered from natural calamities, such as floods, earthquakes, or droughts. The National Disaster Response Fund (NDRF) is used for such relief.
16. The 15th Finance Commission introduced a new disaster risk management fund to ensure that states have adequate resources for managing and mitigating disaster risks.
17. Central Schemes often have an allocation for grants-in-aid, which are provided to states for the implementation of welfare programs such as MGNREGA, National Health Mission, and Mid-Day Meal Scheme.
18. The devolution of taxes refers to the transfer of a certain portion of the taxes collected by the Centre to the States, which reduces the dependency of states on grants-in-aid.
19. Performance-based grants are allocated to states based on their achievements in various areas such as health, education, fiscal discipline, and governance.
20. The Budgetary Provision for Grants-in-Aid is made annually by the Union Government, which earmarks funds for grants based on the financial needs of the states and the nature of the projects.
21. Grants-in-Aid have to be approved by the Union Ministry of Finance, and they are typically allocated after discussions with the states and analysis of their financial needs.
22. Utilization Certificates are required from states to ensure that the grants are spent for the intended purpose. States must submit these certificates to the Central Government to avoid misuse of funds.
23. Central Sector Schemes often provide grants to states for specific sectors like education, health, and infrastructure, with the understanding that the state will contribute a certain percentage of the funding.
24. The Rural Development Ministry provides grants for rural infrastructure and development under programs like Pradhan Mantri Gram Sadak Yojana (PMGSY), which is a significant source of funds for rural states.
25. Urban Development Grants are allocated for the implementation of schemes related to urbanization, infrastructure improvement, and public welfare in urban areas. Smart Cities Mission is one such example.
26. International Assistance also affects Grants-in-Aid. For example, India receives financial aid or grants from international bodies like the World Bank, Asian Development Bank (ADB), and other multilateral organizations for specific projects or sectors.
27. Special Grants for Backward Areas are aimed at improving the socio-economic conditions of underdeveloped regions, such as the Backward Regions Grant Fund (BRGF), which targets the most backward districts.
28. State-Level Grants are also provided to local government institutions like Panchayats and Municipalities to fund local infrastructure and services like education, sanitation, and public health.
29. Grants-in-Aid to Autonomous Bodies are provided to non-government organizations or independent bodies working on specific projects. Examples include Indian Council of Medical Research (ICMR) and Indian Council of Social Science Research (ICSSR).
30. Contingency Grants are a form of short-term financial assistance provided in cases of unforeseen or urgent expenditure, like for national emergencies or unforeseen financial challenges in the states.

Grants-in-aid are a vital tool in Central-State financial relations, helping to address the fiscal disparities between different states and ensuring that resources are directed to areas that need them most. Understanding the nuances of grants, their types, and their role in the fiscal system is crucial for your preparation for the UPSC CSE exam, particularly in topics related to Indian polity, economics, and governance.