The central sponsored programmes (CSPs) have been one key policy initiative of the Government of India to support the health sector programmes directly, even though the health has remained the State subject. The Centre provides direct support to the States in meeting both recurring and non-recurring expenditure of programmes under this policy initiative. It was envisaged that the centralised focus would provide proper direction and thrust to specific health problems of national importance and management and implementation issues could be handled more effectively. The paper review the experience of CSPs using family welfare programme as a case study. It is argues that CSPs have prevented the policy makers to develop a sector-wide view of health programmes. The result is that there is less coordination across different agencies and stakeholders. Mechanisms of information sharing and coordination, pivotal from sector management viewpoint, between various programmes are almost non-existent at both macro and micro level. Though various policy instruments the centre has emphasised its role as major provider of services. There has been less clarity on the roles and responsibilities of the centre as financial intermediary for mobilising resources (e.g., interface of Centre and States with external agencies), allocating resources to states mostly as grants and systems of ensuring end use of resources. Where the CSP policy had envisaged protecting he funding and administering specific components of the health sector programme effectively, this policy has led to number of unintended consequences. There are no financial systems ensuring basic financial management discipline to handle the present day complexities of the programme management in many CSPs. These have created more fragments than integrated the process of management at the micro levels. No one assumes the risk of non-availability of key resources to implement the programme objectives effectively and States do not exhibit sense of ownership of these programmes. Changes and implementation strategies are generally top-driven which have aggravated the problems of programme management. The Centre tends to use uniform approach to manage the programmes despite the wide diversity at ground level conditions and variation in availability of necessary infrastructure. Criterion for allocating the resources lacks transparency not only from centre to states but also from states to districts and equity issues in resource allocation are not addressed. The CSPs have not helped the states to develop their capacity to manage the programmes and has displaced alternative sources of funding. Long-term sustainability o f these programmes remains a major issue. Over the period the uncertainties in resource flows have grown considerably and have affected the programme implementation. Emanating from these, by-passing the State treasury has become one important character of these programmes in recent times. This is reflected through various policy instruments such as provision of kind resources (drugs and other supplies) directly by the centre to the implementing agencies in the districts and through the creation of registered societies. This paper attempts to describe recent developments in financial disbursement systems and development of new management structures and brings out number of important institutional issues, which need the attention of policy makers.