Government of India to provide ₹ 15,000 crore to States for Capital Expenditure

States to get ₹ 5000 crore for asset monetization/disinvestment

Guidelines on the “Scheme of Financial Assistance to States for Capital Expenditure” for 2021-22 issued

The Ministry of Finance, Government of India has decided to provide an additional amount of upto ₹ 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.

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 ₹ 12,000 crore was earmarked for the scheme for the financial year 2020-21, 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.

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:

1. Part-I: This part of the scheme is for the 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.
2. Part-II: This part of the scheme is for all other States not included in Part-I. An amount of ₹ 7,400 crore is earmarked for this part. This amount has been allocated amongst these States in proportion to their share of central taxes as per the award of the 15^th Finance Commission for the year 2021-22.
3. Part-III: This part of the scheme is for providing incentives to States for monetization/recycling of infrastructure assets and disinvestment of the State Public Sector Enterprises (SPSEs).  An amount of ₹ 5,000 crore is allocated for this part of the scheme.  Under this part, States will receive interest free 50 years loan ranging from 33% to 100% of the amount realised by them, through assets monetization, listing and disinvestment.

Monetization of assets unlocks their value, eliminates their holding cost and enables scarce public funds to be deployed to new projects, thus speeding up the implementation of the National Infrastructure Pipeline.

Funds provided to the States under the scheme by the Government of India shall 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.

Interest-free long-term loans for state capital expenditure continue, with allocations and monetization incentives for funding projects. The Union Government continued a scheme providing interest-free 50-year loans to States for 2021-22 to finance new and ongoing capital projects and to settle pending bills. The scheme is divided into three parts: targeted allocations for North East and Hill States, proportionate allocations for other States based on tax-share, and incentives for asset monetization and disinvestment that supply additional loan support tied to proceeds realized.