Even before the advent of Five-Year plans of India, the practice of providing Central Assistance to the States to finance development schemes had been in vogue. After World War II, the Central Government along with Provincial Governments embarked on developmental projects which received Central Assistance in the form of grants that were called post-war development grants.
Some of these grants were stopped by 1950–51 but grants for schemes like Grow More Food continued. Since the exact distribution of financial liability had not been decided by the time of the First Five Year Plan, many schemes which should have appropriately found place in the State sector were included in the Central sector.
Some such schemes/projects taken up in the first Plan were multipurpose river valley schemes like:
In addition to these, community development projects and projects for special minor irrigation, local works etc. were also included. At that point in time, there was no clear criterion for distribution of Central Assistance to the States.
At the beginning of the Second Five Year Plan, a majority of the schemes that were funded centrally and implemented by the States outside of the State Plan were transferred to the State and included in the State Plans. The second plan required large transfer of resources from Centre to States as the resources of all the States taken together were estimated to be short of the requirement by as much as 60%. The case of the Third Five Year Plan was similar.