Scheme for Special Assistance to States for Capital Expenditure

• 14 Dec 2020

Why in News

All the States except Tamil Nadu have availed benefits of the scheme for “Special Assistance to States for Capital Expenditure”.

• The scheme was announced by the Ministry of Finance as a part of the Aatmanirbhar Bharat package.

Key Points

• Background: As part of the Aatmanirbhar Bharat Package, the government had announced that the Centre will offer Rs. 12,000 crore special interest-free 50-year loan to states, exclusively for capital expenditure.
• Aim: To boost capital expenditure by the State governments which are facing a difficult financial environment this year due to the shortfall in tax revenue arising from the Covid-19 pandemic.
• Three Parts:
  
  • Part–I of the scheme covers the north-eastern region (Rs. 200 crores).
  • Part-II is for all other States (Rs. 7500 crores).
  • Part-III of the scheme is aimed at pushing various citizen-centric reforms in the States.
    
    • Under this Part, an amount of Rs. 2000 crores is earmarked.
    • This amount will be available only to those States which carry out at least three out of the four reforms specified by the Ministry of Finance on the reform-linked additional borrowing permissions.
    • Four Reforms: One nation one ration card, ease of doing business, urban local body/ utility reform and power sector reforms.
• Status:
  
  • The Ministry of Finance has approved Rs. 9,879.61 crore worth of capital expenditure proposals of 27 States.
    
    • Of this, Rs. 4,939.81 crore has been released as the first instalment.
  • The capital expenditure projects have been approved in diverse sectors such as health, rural development, water supply, irrigation, power, transport, education, urban development.

Capital Expenditure

• Meaning:
  
  • Capital expenditure is the money spent by the government on the development of machinery, equipment, building, health facilities, education, etc.
  • It also includes the expenditure incurred on acquiring fixed assets like land and investment by the government that gives profits or dividend in future.
  • Along with the creation of assets, repayment of loan is also capital expenditure, as it reduces liability.
  • Capital spending is associated with investment or development spending, where expenditure has benefits extending years into the future.
• Significance:
  
  • Capital expenditure, which leads to the creation of assets are long-term in nature and allow the economy to generate revenue for many years by adding or improving production facilities and boosting operational efficiency.
  • It also increases labour participation, takes stock of the economy and raises its capacity to produce more in future.
• Different from Revenue Expenditure:
  
  • Unlike capital expenditure, which creates assets for the future, revenue expenditure is one that neither creates assets nor reduces any liability of the government.
  • Salaries of employees, interest payment on past debt, subsidies, pension, etc, fall under the category of revenue expenditure. It is recurring in nature.

Source: PIB