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

Part I of the Scheme

• The Part I of the scheme is to be implemented in the North Eastern States and Hilly states of India. Around Rs 2,600 crores has been allocated for this part of the scheme. Of this Himachal Pradesh, Assam and Uttarakhand are to get Rs 400 crores each.

Part II of the scheme

• Al the other states are included under this part of the scheme. Rs 7,400 crores has been allocated to these states. This fund is to be allocated in proportion to their share of central taxes as prescribed by the fifteenth commission of 2021-22.

Part III of the scheme

• Under this part of the scheme, incentives are to be provided to the states for disinvestment of state public sector enterprises and for recycling or monetisation of infrastructure assets. In order to achieve this, Rs 5,000 crores have been allocated.