The Ministry of Finance has approved capital investment proposals of Rs 56,415 crore in 16 states in the current financial year under the scheme entitled ‘Special Assistance to States for Capital Investment 2023-24’.

Capital investment projects in diverse sectors have been approved including health, education, irrigation, water supply, power, roads, bridges and railways. Funds for meeting the state share of the Jal Jeevan Mission and the Pradhan Mantri Gram Sadak Yojana have also been provided to the states under this scheme to enhance pace of the projects in these sectors.

In view of a higher multiplier effect of capital expenditure and in order to provide a boost to capital spending by states, the scheme ‘Special Assistance to States for Capital Investment 2023-24′ was announced in the Union Budget 2023-24. Under the scheme, special assistance is being provided to the state governments in the form of 50-year interest free loan up to an overall sum of Rs. 1.3 lakh crore during the financial year 2023-24.

The scheme has eight parts, Part-I being the largest with allocation of Rs 1 lakh crore. This amount has been allocated amongst states in proportion to their share of central taxes and duties as per the award of the 15th Finance Commission. Other parts of the scheme are either linked to reforms or are for sector specific projects.

In Part–II of the scheme, an amount of Rs. 3,000 crore has been set aside for providing incentives to states for scrapping of the state government vehicles and ambulances, waiver of liabilities on old vehicles, providing tax concessions to individuals for scrapping of old vehicles and setting up of automated vehicle testing facilities.

Part–III and IV of the scheme aim at providing incentives to states for reforms in Urban Planning and Urban Finance. An amount of Rs. 15,000 crore is earmarked for Urban Planning Reforms, while an additional Rs. 5,000 crore is for incentivising the states for making Urban Local Bodies creditworthy and improving their finances.

The scheme also aims at increasing the housing stock for the police personnel and their families within the police stations in urban areas. An amount of Rs. 2,000 crore is earmarked for this purpose under Part-V of the scheme.

Another objective of the scheme is to promote national integration, carry forward the concept of “Make in India” and promote the concept of “One District, One Product (ODOP)” through construction of Unity Mall in each state. An amount of Rs 5,000 crore has been set aside for this purpose under the Part-VI of the scheme.

Part-VII of the scheme, with an allocation of Rs. 5,000 crore is for providing financial assistance to the states for setting up libraries with digital infrastructure at panchayat and ward level for children and adolescents.

A similar scheme entitled ‘Special Assistance to States for Capital Investment for 2022-23′ was also executed by the Ministry of Finance in the last financial year. Under the scheme, Capital Investment proposals of Rs. 95,147.19 crore were approved and an amount of Rs. 81,195.35 crore was released to the States in the last financial year.

The scheme for financial assistance to States for capital investment/expenditure, first instituted by the Ministry of Finance in 2020-21 in the wake of COVID-19, has given a very timely boost to capital spending by States. The flexibility and simplicity of the scheme design has earned liberal praise from chief ministers and finance ministers of states in successive pre-budget consultations.