The Ministry of Finance, Government of India has decided to provide an additional amount of up to Rs 15,000 crore to States as interest-free 50 year loan for spending on capital projects. The Department of Expenditure has issued fresh guidelines in this regard on the “Scheme of Financial Assistance to States for Capital Expenditure” for the financial year 2021-22.
The Finance Minister had in her budget speech announced that the Centre would take measures to nudge States to spend more on infrastructure and to incentivize disinvestment of their public sector enterprises.
Capital expenditure creates employment, especially for the poor and unskilled, has a high multiplier effect, enhances the future productive capacity of the economy, and results in a higher rate of economic growth.
Therefore, despite the adverse financial position of the Central Government, it was decided last year to launch a “Scheme for Special Assistance to States for Capital Expenditure”.
Under the Scheme, financial assistance is provided to the State Governments in the form of 50-year interest-free loan. An amount not exceeding Rs.12,000 crore was earmarked for the scheme for the financial year 2020-21, and a sum of Rs.11,830.29 crore was released to the States. This helped to sustain state-level capital expenditure in the pandemic year.
In view of the positive response to the scheme and considering the requests of the State Governments, the Government has decided to continue the scheme in the year 2021-22.
The Scheme for Special Assistance to States for Capital Expenditure for 2021-22 has three Parts: