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Scheme of Financial Assistance to States for Capital Expenditure

Topics Covered: Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

Scheme of Financial Assistance to States for Capital Expenditure:


Context:

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.

Allocation under the scheme:

  1. The first part of scheme is for North-east and hill states and an amount of ₹2,600 crore has been earmarked.
  2. The second part of scheme is for all other states with an amount of ₹7,400 crore. This amount has been allocated among states in proportion to their share of central taxes as per the award of 15th Finance Commission for 2021-22.
  3. The third part of scheme is for providing incentives to states for monetisation or recycling of infrastructure assets and disinvestment of state public sector enterprises. An amount of ₹5,000 crore is allocated.

Background:

Under the scheme, financial assistance is provided to state governments in the form of 50-year interest free loan.

  • An amount not exceeding ₹12,000 crore was earmarked for 2020-21 and a sum of ₹11,830.29 crore was released.
  • This helped to sustain state level capital expenditure in the pandemic year.

Sources: the Hindu.