The Union government has announced a major policy shift in the way centrally funded schemes will be evaluated and extended beyond the current financial year. According to a Finance Ministry circular dated June 6, only those schemes that show measurable success and clear necessity will be allowed to continue after their existing approvals expire.
Schemes whether fully or partially funded by the Centre must demonstrate “positive outcomes” through formal evaluation processes and prove that they are effectively meeting their original objectives. Additionally, ministries must justify the need for continuation, either due to strong performance or the potential to scale up results, the circular noted.
In an effort to improve the efficiency of public spending, the circular emphasized the need for every scheme to include a defined “sunset date”, a fixed endpoint unless reapproved. Currently, a comprehensive third-party review is underway for all fully funded Central schemes, while the NITI Aayog is tasked with appraising Centrally Sponsored Schemes.
As many as 54 Central sector schemes and 260 Centrally Sponsored Schemes are scheduled to end on March 31, 2026. These will require reappraisal and, in most cases, fresh approval from the Union Cabinet. The affected programmes span a wide range of sectors from health, education, and tribal welfare to agriculture, water, sanitation, infrastructure, and scientific research.
In addition to outcome-based evaluations, the Finance Ministry has introduced new financial constraints. Going forward, the projected five-year expenditure of a continuing scheme during the 16th Finance Commission cycle (2026–2031) should not typically exceed 5.5 times the scheme’s average annual expenditure during the 2021–22 to 2024–25 period.
Wherever possible, ministries have been encouraged to propose lower-cost alternatives. They may also reallocate funds between schemes, provided they present specific justifications for doing so. All schemes will now operate as “fund-limited” initiatives meaning their total sanctioned expenditure across the Finance Commission cycle must stay within the approved budget envelope.
This funding discipline will also apply to demand-driven flagship schemes like the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA). Future outlays for such schemes will be determined based on projected beneficiary numbers for the entire Finance Commission period. Sanctions will be capped at the approved level, though ministries may carry forward committed expenses within that cap. If there is a need to increase funding due to higher-than-expected demand, prior approval must be obtained from the Department of Expenditure.
