The union cabinet on Wednesday gave its clearance for a $1, 500 million (over 100 billion rupees) World Bank project to support Swachh Bharat Mission (Gramin) or Clean India Mission in rural areas.
The project is aimed at supporting government efforts to achieve universal sanitation in rural areas and end the practice of open defecation in the countryside by 2019.
The project, cleared by the cabinet at a meeting chaired by Prime Minister Narendra Modi, provides for "incentivising states on the basis of their performance in the existing scheme", Telecom Minister Ravi Shankar Prasad told reporters here.
The project will also put in place a robust and credible independent verification system for annual measurement of improvement in rural sanitation.
The scheme will have separate parameters for each beneficiary states.
"In September 2014, the government set certain parameters for the states to get the benefit. These parameters include reduction in open defecation and so on, " he said.
"Under the approved project, the performance of the states will be gauged through certain performance indicators, called the disbursement - linked indicators, " an official statement said.
It added that funds shall be released to states "on the basis of reduction in prevalence of open defecation amongst rural households" compared to the previous year's record.
The funds will also be released on the basis of estimated population residing in open defecation - free villages.
The states will pass on a substantial portion (more than 95 percent) of the performance incentive grant funds to the appropriate implementing levels of districts and blocks, the statement said.
The project will accelerate efforts to achieve sustained outcomes in sanitation by 2019.
The project comes in the wake of accelerated efforts under the Swachh Bharat Mission (Gramin) which aims to boost efforts to achieve universal sanitation coverage, improve cleanliness and eliminate open defecation in rural India by 2019.