Why thousands of crores by governments remain unspent and what must change

Time of India

10-07-2025

Yadul Krishna is a policy economist and a legal fellow at Governance Innovation Labs. As the Parliamentary Secretary to a Rajya Sabha MP, he drafted "The Bhagat Singh National Urban Employment Guarantee Bill, 2022," successfully introduced in the 2022 Monsoon Session of Indian Parliament. He previously worked as a finance professional in an investment services company and was briefly a columnist with the British Herald. Krishna's writings on the economy and governance have appeared across the globe, with multiple translations into other languages and have been referenced in research papers and newspaper editorials. An alumnus of SRCC, he is currently pursuing law at the Faculty of Law, University of Delhi. He tweets @Yadul_Krishna LESS ... MORE
Despite rising allocations, India's development goals are being quietly derailed by an alarming pattern of unspent government funds across critical sectors.
For the first time in India, the Union Budget 2025-2026 has disclosed the amount of total unspent funds available with the states and Union Territories, allocated to them under various centrally sponsored schemes (CSS). As of December 31, 2024, an estimated Rs 1.6 trillion allocated for these schemes was lying with the states. This is not a small amount, accounting for over 40 per cent of the annual expenditure under CSS.
India's federal development model is built on the timely and efficient transfer of funds from the Centre to the states. These transfers, often tied to centrally sponsored schemes, are critical for ensuring uniform access to health, education, and infrastructure across a diverse and unequal federal landscape. However, the persistent underutilisation and lapse of centrally-allocated funds have become a recurring and deeply worrying pattern. Far from being a matter of bureaucratic oversight, these lapses represent a deeper malaise afflicting India's fiscal federalism—a combination of procedural rigidity, administrative inertia, and political friction between the Union and the states.
The scale of unutilized funds over the past decade is staggering. Between 2014 and 2019, over Rs1.5 lakh-crore remained unspent. The Members of Parliament Local Area Development Scheme (MPLADS) alone saw an unspent balance of Rs 1,734.42 crore during the 16th Lok Sabha—over twice the figure from the previous term. Despite a dip in allocation during the 17th Lok Sabha, largely due to the pandemic, utilisation rates have remained uneven and unpredictable.
The core issue lies not merely in how funds are allocated, but in how they are absorbed. Utilisation Certificates (UCs), which are mandatory for the release of further tranches, are frequently delayed or inadequately furnished. As of March 2024, over Rs 5 lakh crore was locked due to pending UCs. Flagship schemes have not been immune. The National Health Mission (NHM), one of the most ambitious public health initiatives by the Centre, saw an average fund utilisation of only 55% across 29 states in 2023–2024. The total unspent central share balances under the Samagra Shiksha scheme from 2018–19 to 2022–23 amounted to approximately Rs 11,000 crore, even as schools across India lacked basic infrastructure.
The reasons are manifold and blame lies on both sides. The Union government has, over the years, layered its funding protocols with increasingly complex guidelines. In the name of accountability, ministries insist on exhaustive documentation, multiple layers of approval, and compliance-heavy reporting, all of which delay the actual flow of funds. For example, over Rs 8,000 crore under the Pradhan Mantri Awas Yojana (PMAY) in 2019-2020 remained unutilised, largely due to delayed approvals and procedural roadblocks.
States, too, are complicit. Many lack the administrative capacity to absorb funds efficiently. Planning departments are understaffed, procurement processes are slow, and project implementation often lags due to corruption, red tape, and political indifference. In Madhya Pradesh, Rs 3,116 crore out of Rs 12,419 crore allocated under NHM between 2017 and 2022 was left unspent, severely impacting health service delivery. Similar patterns have been observed in schemes such as the Pradhan Mantri Gram Sadak Yojana (PMGSY), where delays in land acquisition and contracting have held up rural road projects, and in the Clean Ganga Mission, where a CAG report revealed that Rs 2,500 crore remained unutilised as of 2017.
This persistent failure has disproportionately hurt critical sectors. The health sector, especially post-COVID-19, is in urgent need of capital infusion, yet fund lapses continue to delay infrastructure creation and human resource recruitment. In education, unspent allocations have led to inadequate classrooms, high pupil-teacher ratios, and poor learning outcomes. Rural development schemes like MGNREGA, which act as lifelines in economically fragile states, have seen funds lying idle even as wage payments remain delayed.
Correctives must begin with transparency and real-time monitoring. There is an urgent need for digital public dashboards, AI-driven fund-tracking mechanisms, and automated alerts that flag potential underutilisation. States must be empowered, not merely held accountable. The Centre should invest in building administrative and financial planning capacities at the state level. Rather than punishing states for delays, it should create an enabling environment through technical support, capacity-building programmes, and streamlined fund release procedures.
Equally important is the recalibration of incentives. States that demonstrate e
fficient and timely fund usage should be rewarded with additional allocations or flexible spending norms. Public-private partnerships must be leveraged not just for financing, but also for improving last-mile delivery. In the long run, a transparent and participatory mechanism for monitoring fund utilisation—one that includes local bodies, civil society, and citizens—can help hold both Union and state governments accountable.
India's development aspirations cannot afford to be hostage to bureaucratic gridlock and intergovernmental blame games. The cost of inaction is paid by the most vulnerable: those denied healthcare, children without access to schools, and workers left jobless due to stalled projects. Fixing the fund utilisation crisis is not just about financial efficiency, it is a moral imperative for a nation committed to inclusive growth. The time to act is now.
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Views expressed above are the author's own.