Special Assistance to States for Capital Expenditure- Madhya Pradesh and Andhra Pradesh has become the first group of States to complete three out of the four citizen-centric reforms stipulated by the Department of Expenditure, Ministry of Finance. The two States have completed the One Nation, One Ration Card Reforms, Ease of Doing Business Reforms, and Urban Local Bodies Reforms.
Consequent to the completion of reforms in the three sectors, the Department of Expenditure, Ministry of Finance has decided to provide additional financial assistance amounting to Rs.1004 crore to these States under the newly launched Scheme of “Special Assistance to States for Capital Expenditure”.
Andhra Pradesh will get an additional amount of Rs.344 crore while Madhya Pradesh has become entitled to receive Rs.660 crore for capital projects. The Scheme was announced by the Finance Minister on 12th October 2020 as part of the Aatma Nirbhar Bharat package. The additional financial assistance for the capital expenditure is in addition to the permission of Rs.14,694 crore issued to these States for extra borrowings for completing the reforms.
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The Scheme of “Special Assistance to States for Capital Expenditure” is aimed at boosting capital expenditure by the State Governments who are facing a difficult financial environment this year due to the 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 economic growth. Therefore, despite the adverse financial position of the Central Government, it was decided to extend a special assistant to the State Governments in respect of capital expenditure, in the financial year 2020-21.
The Scheme has got a very warm response from the State Governments. So far capital expenditure proposals of Rs.9880 crore of 27 States have been approved by the Ministry of Finance. An amount of Rs.4940 crore has already been released to the States as the first installment under the Scheme. State-wise allocation, approval granted, and funds released are attached. Tamil Nadu has not availed the benefit of the Scheme.
The capital expenditure projects have been approved in diverse sectors of the economy like Health, Rural Development, Water Supply, Irrigation, Power, Transport, Education, Urban Development.
Scheme for special assistance to states for capital expenditure
The scheme of “Special Assistance to States for Capital Expenditure” has three parts.
Part–I of the scheme covers the north-eastern and hill States. Under this part, Rs. 200 crores is allocated to each of the 7 north-eastern states (Arunachal Pradesh, Meghalaya, Manipur, Mizoram, Nagaland, Sikkim, and Tripura) and Rs. 450 crore is allocated to each of the hill States (Himachal Pradesh and Uttarakhand). In view of the higher population and geographical area, the State of Assam has been provided an enhanced allocation of Rs. 450 crore under the Scheme.
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Part-II of the Scheme is, for all other States not included in Part-I. An amount of Rs. 7,500 crore is 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 Rs. 2000 crore is earmarked. This amount will be available only to those States who carry out by 31st December 2020, at least 3 out of the 4 reforms specified by the Ministry of Finance in its letter dated 17th May 2020 regarding reform linked additional borrowing permissions. The 4 reforms are – One Nation One Ration Card, Ease of Doing Business Reform, Urban Local Body/ Utility Reform, and Power Sector Reform.
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