Special Assistance to States Finalized

The Ministry of Finance has finalised the guidelines and  funds under the Scheme for Special Assistance to States for Capital Investment 2024-25 and circulated them to the states.

Special Assistance to States Finalized

• Rs 10,000 crore has been finalised for implementing land-related reforms in rural and urban areas.
• Additional Funds: 
  • Farmers’ Registry: Rs 5,000 crore has been finalised for creating a Farmers Registry  with details of six crore farmers and their lands during the financial year 2024-25 (FY25)
  • Working Women’s Hostel: Rs. 5,000 crore has been finalised  for the construction of working women’s hostels. 
    • The State Government will provide land for the hostels either  free of cost, or the cost of acquiring the land will be borne by them
    • Aim: To facilitate higher participation of women in the workforce through the establishment of working women’s hostels in collaboration with industry, and setting up crèches.
    • Public-Private Partnership (PPP) model: The operation and maintenance of the hostels will be managed by a private party while the ownership of the hostel would rest with the state government
    • State Wise Allotment: Uttar Pradesh will receive the highest amount of Rs 382 crore, followed by Madhya Pradesh (Rs 284 crore) and Assam (Rs 226 crore).
  • Rs 1,000 crore for the development of the National Capital Region (NCR): It will be divided equally among the three states of Haryana, Uttar Pradesh, and Rajasthan.
  • Rs 15,000 crore for states’ shares of Centrally Sponsored Schemes, including Urban and Rural Infrastructure Projects
  • Rs 15,000 crore for stimulating industrial growth
  • Rs 4,000 crore in incentives for Implementing the SNA Sparsh model for just-in-time release of funds under Centrally Sponsored Schemes
  • Rs 25,000 crore as incentives for achieving targets fixed for capital expenditure for 2024-25.

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About The Scheme for Special Assistance to States for Capital Investment 2024-25

• The scheme envisages special assistance being provided to the States in the form of a 50-year interest-free loan.
  • For the Fiscal Year 2023-24: The Budget Estimate for the scheme was ₹1.30 lakh crore which was later revised to ₹1.05 crore. The scheme was launched for the first time in fiscal year 2020-21 in the wake of COVID-19 Pandemic
• Principle: The scheme is based on the principle of Multiplier Effect, where it is believed that every  ₹1 spent as capital expenditure will result in an impact worth ₹3. 
• Capital investment Sectors: Projects in Health, education, irrigation, water supply, power, roads, bridges and railways  are approved.
• Fiscal Year 2024-25: 
  • Budget:  ₹1.30 lakh crore has been allotted for the year 2024-25
  • Mandatory Conditions: 
    • Correct translation to local language about names and features of centrally sponsored schemes
    • Implementing the SNA Sparsh model: Deposit of central share of interest earned in SNA accounts till March 31 in the Consolidated Fund of India.
  • Proposed Land Reforms in Rural Areas: States have to include the,

• • • Assignment of a Unique Land Parcel Identification Number (ULPIN) or Bhu-Aadhaar for all lands
    • Digitisation of Cadastral Maps
    • Survey of map sub-divisions according to current ownership
    • Establishment of a land registry
  • Proposed Land Reforms In Urban Areas: 
    • Fiscal incentives will be provided for the digitization of land records using GIS mapping 
    • Establishment of an information technology-based system for property record administration, updating, and tax administration.

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Capital Expenditure In India

• Capital Expenditure is defined as the governmental (central, state, local) spending on the development of physical assets like buildings, machinery, equipment, healthcare facilities, educational institutions, etc. 
  • It also covers the costs incurred by the government to purchase fixed assets like land and investments that will yield earnings or dividends in the future. 
  • Capex involves funds spent on the following:
    • Purchasing fixed and intangible assets
    • Upgrade an existing asset
    • Repairing an existing asset
    • Repayment of loans
• Capex Loans to States: They are distributed to the states in two major categories,
  • Untied: The untied loans would be released to states in two installments under the Scheme for Special Assistance to States for Capital Investment 2024-25 
    • The first instalment of 66% of the approved amount on meeting the mandatory conditions and the second instalment of 34% will be released on utilization of at least 75% of the amount released in the first installment.
  • Tied: It is subject to social reforms and specific development expenditures.
    •  Example: The Funds provided under specific Centrally Sponsored Schemes and other Schemes. 
• Fiscal Year 2023-24: The Centre had spent 85 per cent of the revised capital expenditure estimate of Rs 9.5 lakh crore.
  • States: As per the provisional accounts of 25 states, They achieved 84 per cent of the budgeted capital expenditure
    • These states had budgeted a capital expenditure (capex) programme of Rs 8.37 trillion for FY24. The provisional amount spent was Rs 7.02 trillion.
    • Lowest capex absorption States: These  included Nagaland, Chhattisgarh, Punjab, and Mizoram.
    • Exception: Four states including Uttar Pradesh, Telangana, Bihar, and Sikkim spent more than the targeted amount
• Fiscal Year 2024-25: Centre’s Capital Expenditure Target were raised by 16.9 per cent for financial year 2024-25 (FY25) to Rs 11.1 trillion over the revised estimates for FY24 In the interim budget.

Factors Influencing India’s States’ Capex Spending

• Public Sector Led: The public sector leads in Capex Expenditure with national and state government spending in double digits and in a wide range of areas
• Underperforming Private sector:  Private Investments has increased slowly, in single digits, and that too in  concentrated areas like in infrastructure, hospitality and retail, and is yet to surge into other segments.
• Elections: Indian states spend the most on capex when their is an election approaching
  • Example:  Telangana has met 90 percent of its FY24 capex target. The state held elections to its legislative assembly in November last year

Need For Capital Expenditure

• Planning and Development: it shows the expenditure is planning and development-linked expenditure which may have a positive effect on labor engagement, build up or upgrade infrastructure, and improve the ability to generate more revenue through asset creation.
• Investment Environment:  States with healthy capex report cards often host a positive investment environment for the private sector.
• Long Term growth: Capex creates Multiplier Effect thus has a greater impact on long-term growth and productivity than revenue expenditure
• Increase Productivity: Allocating capital for new projects, expanding ventures, or improving technology and infrastructure promotes economic growth by increasing productivity, demand for related industries, and creating job opportunities.

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