State Capex Financing

The Department of Expenditure in the Ministry of Finance has given the green light for capital investment plans worth Rs 56,415 crore in 16 states for this financial year. The funding is part of the ‘Special Assistance to States for Capital Investment 2023-24’ scheme.

State Funding
State Capex Funding

The investments will be made on projects planned in sectors like health, education, irrigation, water supply, power, roads, bridges, and railways. Additionally, the states will receive support to meet their share of the Jal Jeevan Mission and Pradhan Mantri Gram Sadak Yojana funds, to speed up projects in these sectors too.

The ‘Special Assistance to States for Capital Investment 2023-24’ scheme was announced in the Union Budget 2023-24, in an effort to encourage capital spending by states, recognizing its potential for economic growth. The scheme offers state governments a 50-year interest-free loan totalling up to Rs 1.3 lakh crore during the 2023-24 fiscal year.

The state financing scheme consists of eight parts, with Part-I being the largest, accounting for Rs one lakh crore. This allocation is divided among the states according to their share of central taxes and duties, as outlined by the 15th Finance Commission. The other parts of the scheme are linked to specific projects or reforms.

For instance, Part-II has allocated Rs 3,000 crore for incentives related to the removal of old state government vehicles and ambulances, waiving liabilities on old vehicles, offering tax breaks for scrapping old vehicles, and establishing automated vehicle testing facilities. Part-III and IV aim to incentivize urban planning and finance reforms, setting aside Rs 15,000 crore and Rs 5,000 crore, respectively.

Furthermore, the scheme plans to increase the number of houses for police personnel and their families in urban areas, assigning Rs 2,000 crore to this cause in Part-V. The scheme also hopes to foster national integration, and promote the “Make in India” initiative, and the “One District, One Product (ODOP)” concept via the construction of a Unity Mall in each state, with Rs 5,000 crore allocated under Part-VI.

Part-VII involves setting up libraries with digital infrastructure at Panchayat and Ward level for children and adolescents, with a budget of Rs 5,000 crore.

A similar scheme was implemented last fiscal year under the title ‘Special Assistance to States for Capital Investment for 2022-23’, where Rs. 95,147.19 crore worth of capital investment proposals were approved and Rs 81,195.35 crore was disbursed to the states.

These schemes, first introduced by the Ministry of Finance in 2020-21 as a response to the COVID-19 pandemic, have significantly boosted capital spending by states. Their straightforward and adaptable design has received widespread approval from state Chief Ministers and Finance Ministers in prior budget consultations.

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