₹ 11,830 crore released to States under the scheme “Special Assistance to States for Capital Expenditure”

11 States get enhanced allocation for completing reforms

Scheme gives timely boost to economic recovery

The Department of Expenditure, Ministry of Finance has released an amount of ₹ 11,830 crore to States under the scheme “Special Assistance to States for Capital Expenditure”.

The scheme of “Special Assistance to States for Capital Expenditure was announced by the Finance Minister on 12th October, 2020 as part of Aatma Nirbhar Bharat package. The Scheme is aimed at boosting capital expenditure by the State Governments who were facing difficult financial environment in the year 2020-21 due to a shortfall in tax revenue arising from the COVID-19 pandemic. 

Capital Expenditure has a higher multiplier effect, enhancing the future productive capacity of the economy, and results in a higher rate of economy growth.  Therefore, despite the adverse financial position of the Central Government, it was decided to extend a special assistance to the State Governments in respect of capital expenditure, in financial year 2020-21.  The scheme has been continued in the year 2021-22 as well.

The scheme has got very warm response from the State Governments. Capital expenditure proposals of ₹ 11,912 crore of 27 States were approved under the scheme by the Department of Expenditure. The capital expenditure projects have been approved in diverse sectors of economy like, Health, Rural Development, Water Supply, Irrigation, Power, Transport, Education, Urban Development. 

The Scheme has three parts.  Part–I of the scheme covers the north-eastern and hill States.  ₹ 2500 crore were allocated under this part to the 9 North East and Hill States under this part.  Part-II of the scheme is, for all other States not included in Part-I. An amount of ₹ 7,500 crore was earmarked for this part.  This amount has been allocated amongst these States in proportion to their share of central tax as per the interim award of the 15th Finance Commission for the year 2020-21. 

Part-III of the Scheme is aimed at pushing various citizen-centric reforms in the States.  Under this Part, an amount of ₹ 2000 crore was earmarked.  This amount was available to those States who carry out at least 3 out of the 4 reforms specified by the Ministry of Finance in its letter dated 17th May, 2020.  The reforms were to be certified by the nodal ministry concerned.  The 4 reforms are - One Nation One Ration Card, Ease of doing Business Reform, Urban Local Body/ Utility Reform and Power Sector Reform.  11 States qualified under this part and were given enhanced allocation under Part-III of the scheme.

Special assistance to states for capital expenditure supports state capital projects after pandemic revenue shortfalls and reform compliance. Special Assistance to States for Capital Expenditure funds state capital projects across sectors to address pandemic-related revenue shortfalls, premised on capital expenditure's higher multiplier effect. The scheme comprises three parts: targeted allocations for north-eastern and hill States; proportional distribution among other States based on central tax share; and a reform-linked tranche available to States implementing at least three of four specified citizen-centric reforms, with certified compliance leading to enhanced allocations.