Recently, the Central government approved the allocation of Rs. 56,415 crore to 16 states as part of the “Special Assistance to States for Capital Investment 2023-24” Scheme. This initiative aims to provide timely support to state governments in enhancing their capital expenditure, which plays a crucial role in promoting economic growth and development.
The Need for Continued Capital Expenditure
The push for capital expenditure (capex) by the Central government for states is significant, considering that several states, including Andhra Pradesh, Uttar Pradesh, Maharashtra, and Kerala, failed to meet their capex targets. According to a Bank of Baroda report, 14 out of 25 states met less than 75 percent of the target in FY2023. In contrast, the Centre met its capex targets and exceeded its capital expenditure estimate by Rs. 8,551 crore in FY23.
The “Special Assistance to States for Capital Investment 2023-24” Scheme
To further strengthen capital spending by states and leverage its higher multiplier effect, the scheme was introduced in the Union Budget 2023-24. This scheme, which provides financial assistance to states for capital investment and expenditure, was initially instituted by the Ministry of Finance in 2020-21 in response to the Covid-19 pandemic. The scheme’s flexible and straightforward design has received praise from Chief Ministers and Finance Ministers of states during successive pre-budget consultations.
Components of the Scheme
- Part-I: The largest component of the scheme, with an allocation of Rs. 1 lakh crore, has been distributed among states based on their share of central taxes and duties as per the 15th Finance Commission’s award. This allocation aims to bolster overall capital investment in states.
- Part-II: Rs. 3,000 crore has been set aside for providing incentives to states for scrapping state government vehicles and ambulances. This initiative encourages the modernization and renewal of the state government’s vehicle fleet, contributing to improved efficiency and reducing pollution.
- Part-III and IV: These components of the scheme focus on providing incentives to states for reforms in urban planning and urban finance. By encouraging states to adopt progressive urban planning practices and efficient financial management, these components aim to enhance the quality of urban infrastructure and promote sustainable urban development.
- Part-V: This component aims to increase the housing stock for police personnel and their families within police stations in urban areas. By providing better housing facilities, this initiative aims to improve the living conditions of police personnel and enhance their effectiveness in maintaining law and order.
- Part-VI: This component promotes national integration, the Make in India initiative, and the One District, One Product (ODOP) program through the construction of Unity Malls in each state. These malls will serve as platforms for showcasing local products, encouraging entrepreneurship, and fostering economic growth.
- Part-VII: This component provides financial assistance to states for setting up libraries with digital infrastructure at the Panchayat and Ward levels. By promoting access to knowledge and information, this initiative aims to empower local communities and foster intellectual growth.
