Conditional & Unconditional Transfers

Fund transfer from national government to sub-national governments can be classified into two: conditional and unconditional.

Conditional transfer of fund: Fund is transferred to lower level governments with certain set of spending instructions by the top level government. The fund cannot be spent in their own sake. It should be spent only for the concerned purpose. For example, Canada Health Transfer (CHT): here the fund should be spent on the basis of centre’s instructions which are for maintaining national criteria. Grants-in-aid to local self governments, disaster relief, environmental concerns, elementary education, maintenance of roads and bridges etc. as per recommendations of Finance Commission are the recent examples of conditional transfer in India.

Unconditional transfer of fund: Transfer of fund from national government to sub-national government with no instructions are termed as unconditional fund transfer. Sub-national governments are free to spend the fund obtained from national government under this category as there is no spending instructions by the central authority. For example, central tax share to the states in India belong to this category.

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