The Indian Ministry of Finance’s special assistance scheme for states’ capital expenditure has been availed by all states except Tamil Nadu. This initiative is part of the Aatmanirbhar Bharat (Self-Reliant India) package, aimed to uplift the economic stress of the states caused by the Covid-19 pandemic.
The Special Assistance Scheme from Aatmanirbhar Bharat Package
As per the announcement made under the Aatmanirbhar Bharat Package, the Centre has planned to extend an interest-free 50-year loan worth Rs. 12,000 crore to states specifically for capital expenditure. The key goal of this strategy is to augment the capital expenditure by State governments grappling with a challenging fiscal condition due to tax revenue shortfalls stemming from the Covid-19 crisis.
Structure of the Special Assistance Scheme
The said scheme consists of three components. Part-I targets the north-eastern region with Rs. 200 crores specifically allocated for them. Part-II, with its Rs. 7500 crores package, caters to all other States. The focus of Part-III is on instigating diverse citizen-centric reforms in the States. An amount of Rs. 2000 crores is designated for this part, which will be exclusively accessible to those States implementing at least three out of the four reforms specified by the Ministry of Finance on the reform-linked extra borrowing permissions.
The Four Reforms Under Special Assistance Scheme
The four reforms outlined by the ministry include the implementation of one nation one ration card, ease-of-doing-business reforms, urban local body/utility reform, and power sector improvements. At present, the Ministry of Finance has sanctioned Rs. 9,879.61 crore worth of capital expenditure proposals from 27 States. Out of this, the first instalment of Rs. 4,939.81 crore has already been disbursed. The capital expenditure projects greenlighted span various sectors including health, rural development, water supply, irrigation, power, transport, education, and urban development.
Understanding Capital Expenditure
Capital expenditure (CapEx) refers to the government’s investment in acquiring or upgrading physical assets such as machinery, buildings, and equipment. It also includes areas like health facilities, education, and expenses incurred in acquiring fixed assets like land. CapEx is linked with investment or development spending, where the benefits of expenditure extend into the future.
Significance of Capital Expenditure
The creation of long-term assets through capital expenditure plays a vital role in the economy. It enables revenue generation for several years by improving production facilities and operational efficiency. Furthermore, it stimulates labour participation and enhances the economy’s capacity to produce more in the future.
Contrasting Capital Expenditure and Revenue Expenditure
While capital expenditure creates future assets, revenue expenditure neither generates assets nor reduces any liability of the government. Employee salaries, interest payments on past debts, subsidies and pensions are all examples of revenue expenditure which is recurring in nature.
The information stated above is taken from PIB, India’s largest public sector publishing house.
Last Modified: February 9, 2024