Finance Ministry has decided to provide an additional amount of up to 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 in her budget speech had announced that the Centre would take measures to nudge states to spend more on infrastructure and to incentivise 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 Centre has decided to continue the scheme in the year 2021-22, a finance ministry statement said.
The scheme this year has three parts. First part of the scheme is for the North-East and Hill states and an amount of Rs 2,600 crore has been earmarked for this part. The second part is for all other states not included in Part-I. An amount of Rs 7,400 crore is earmarked for this part. The third part of the scheme is for providing incentives to states for monetisation/recycling of infrastructure assets and disinvestment of the State Public Sector Enterprises (SPSEs). An amount of Rs 5,000 crore is allocated for this part of the scheme.
Under this part, states will receive interest free 50-year loan ranging from 33 per cent to 100 per cent of the amount realised by them, through assets monetization, listing and disinvestment.
Monetisation 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 Centre 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.