The budget outlay for Centrally Sponsored Schemes (CSS) for India in 2005-06 is significantly higher as compared to the previous year's level of Rs.395,000 million. This includes increased allocations for rural roads, rural employment, and education and nutritional support for pre-school children. At present there are over 200 such schemes in operation, of which a dozen accounts for more than two-thirds of the outlay. Given the states limited scope to significantly raise internal resources within the existing fiscal framework, coupled with a high wage bill that crowds out development expenditure, the CSS are likely to remain an important source for development funds for the states. The objective of CSS is to address issues of national priority with focus on human development, poverty alleviation and rural backwardness. The findings and the suggestions to improve financial accountability systems in CSS needs to be viewed in the light of varying quality of governance across the states and the fiscal stress faced by certain states.