The Finance Ministry has decided to provide an additional amount of up to ₹15,000 crore to States as an interest-free 50-year loan for spending on capital projects. The Department of Expenditure in the Finance Ministry 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 scheme for special assistance to states for capital expenditure for the year 2021–22 has three parts—part one relates to North East and Hill States and an amount of ₹2,600 crore has been earmarked for this part. Out of this, Assam, Himachal Pradesh and Uttarakhand will get ₹ 400 crore each while remaining states in this group have been allocated ₹200 crore each.

As regards part two, it is for all other states not included in part one. An amount of ₹7,400 crore is earmarked for this part. This amount has been allocated among the states in proportion to their share of central taxes as per the award of the 15th finance commission for the year 2021–22, an official release said.

Part three of the scheme is for providing incentives to states for monetisation/recycling of infrastructure assets and disinvestment of state public sector enterprises. About ₹5,000 crore has been allocated for this part of the scheme. Under this, states will receive interest-free 50 years loan ranging from 33 to 100 per cent of the amount realised by them, through assets monetisation listing and disinvestment.

Monetisation of assets unlocks their value, eliminate their holding cost and enable scarce public funds to be deployed to new projects, the speeding up the implementation of the national infrastructure pipeline. Funds provided to the states under the scheme by the central government would be used for new and ongoing capital projects, for long-term benefit to the state. The funds may also be used for settling pending bills in ongoing capital projects, the release added

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 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 ₹12,000 crore was earmarked for the scheme for the financial year 2021-22 and a sum of ₹11,830.29 crore was released to the states. This helped to sustain state-level capital expenditure in the pandemic year.

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