The Indian government, under the Scheme for Special Assistance to States for Capital Investment, has allocated an estimable amount of Rs 1,67,518.6-crore as special assistance (loan). Markedly, Uttar Pradesh (UP) has emerged as the highest beneficiary of this scheme over the past four years. This significant financial aid highlights the government’s dedication to fostering development endeavors in UP.
Capital Expenditure Trends According to the Ministry of Finance
When assessing the trends in capital expenditure, it comes to light that UP and Bihar are the prime states which have met the necessary criteria related to Capital Expenditure. Consequently, they received the maximum allocation under the Scheme during the last four years. Other states such as Uttarakhand, Haryana, Kerala, and Punjab obtained about 1-2% of the total amount released under this Scheme. On the downside, Andrha Pradesh, Kerala, Manipur, and Punjab did not receive any allocation in 2023-24 due to their failure to fulfil the eligibility criteria prescribed under the Scheme.
About the Special Assistance to States for Capital Investment Scheme
Launched in FY 2020-21 amid the Covid-19 Pandemic, The Scheme for Special Assistance to States for Capital Expenditure was later expanded and continued as ‘Scheme for Special Assistance to States for Capital Investment 2023-24’ with an allocation of Rs 1.3-lakh crore. The scheme is dissected into eight parts, with Part-I being the largest, encompassing an allocation of Rs. 1 lakh crore. This specific amount is divided amongst states based on their share of central taxes and duties as determined by the award of the 15th Finance Commission. The remaining parts of this scheme are either linked to reforms or cater to sector-specific projects.
Structure and Objectives of the Scheme
The scheme’s structure includes incentives for states to scrap old vehicles and establish automated vehicle testing facilities, rewards for reforms in urban planning and urban finance, and funds for boosting the housing stock for police personnel and their families within urban police stations. Furthermore, it supports the vision of national integration, Make in India, and One District One Product through Unity Mall projects that promote cultural diversity and local products.
The scheme aims to stimulate demand and create jobs considering its potential higher multiplier effect on the economy. It is also structured to expedite projects in critical sectors like Jal Jeevan Mission and Pradhan Mantri Gram Sadak Yojana by providing necessary funds. Moreover, it encourages states to undertake reforms in urban planning and urban finance to improve quality of life and governance in cities.
Unpacking Capital Expenditure in India
Capital Expenditure (Capex) involves funds allocated by the government for acquiring, constructing, or improving physical assets like infrastructure, buildings, machinery, and equipment. It is viewed as productive and growth-enhancing since it contributes to the economy’s productive capacity and generates income and employment in the future. The capital investment outlay has experienced a consecutive three-year increase, reaching Rs 10 lakh crore, accounting for 3.3% of India’s GDP, marking a notable growth of 33% (Union Budget 2023-24).
Introducing the Concept of Effective Capital Expenditure
While the government’s spending on creating capital assets through grants-in-aid to states and other agencies is not included in the capital expenditure presented in the budget, these grants significantly contribute to creating fixed assets such as roads, bridges, schools, hospitals, etc. To accurately measure the extent of public investment by the central government, the concept of ‘effective capital expenditure’ has been introduced. This is defined as the total of capital expenditure and grants for the creation of capital assets, budgeted at Rs 13.7 lakh crore or 4.5% of GDP (Union Budget 2023-24).
