Capital Expenditure for States : 15,000 crore
Source : PIB
GS II : Functions and responsibilities of the Union and the States, issues and challenges pertaining to the federal structure, devolution of powers and finances up to local levels and challenges therein.

Why in News ?

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.

Key Facts

• 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.
• 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.
• 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.
• Funds provided to the States under the scheme by the Government of India shall be used for new and ongoing capital projects.
• The funds may also be used for settling pending bills in ongoing capital projects.

Scheme of Financial Assistance to States for Capital Expenditure (For Scheme Details : Click Here)

Aim of the Scheme : For boosting capital expenditure by the State Governments who are facing difficult financial environment this year due to the shortfall in tax revenue arising from the COVID 19 pandemic.

• The scheme was announced by the Ministry of Finance as a part of the Aatmanirbhar Bharat package.
• 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.
• A sum of Rs.11,830.29 crore was released to the States.
• This helped to boost 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.

In 2020 capital expenditure proposals of Rs. 9,879.61 crore of 27 States have been approved by the Ministry of Finance. This was released as a part of Aatmanirbhar Bharat package.

What is a Capital Expenditure ?

In simple terms the Capital Expenditure is the money spent by the government for the development of machinery, equipment, building, health facilities, education, land, roads, investment etc.

Capital expenditure creates employment, especially for the poor and unskilled which has a high multiplier effect that  enhances the future productive capacity of the economy and results in a higher rate of economic growth.

What is a Revenue Expenditure ?

Expenditure that are not used to create assets. Some example are expenses on Salaries, Pensions, administrative cost, interest payment on past debt, subsidies.

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