Centre to give ₹15k crore interest-free loans to states for capex

The Centre will provide additional 15,000 crore to states in 2021-22 as interest free loan for capital expenditure, including 5,000 crore if states undertake asset monetisation and divestment of public sector enterprises.

A similar scheme was announced last October as part of the Atmanirbhar Bharat scheme to help boost capital expenditure of the state governments facing financial constraints due to a shortfall in tax revenue collections due to the Covid-19 pandemic. As part of the scheme, 12,000 crore was earmarked for the scheme for 2020-21, and 11,830 crore was released to states.

“In view of the positive response to the scheme and, considering the requests of state governments, the government has decided to continue with the scheme in 2021-22. The department of expenditure has issued fresh guidelines in this regard on the ‘Scheme of Financial Assistance to States for Capital Expenditure’ for the financial year 2021-22. The finance minister had in her budget speech announced that the Centre would take measures to nudge states to spend more on infrastructure and to incentivise disinvestment of their public sector enterprises,” the finance ministry said in a statement on Friday.

Capital expenditure creates employment and has a high multiplier effect, enhancing future production capacity in the economy, which results in a higher rate of economic growth.

As part of the scheme, 2,600 crore will be provided to North-East and hill states—while Assam, Himachal Pradesh and Uttarakhand will get 400 crore, each, the remaining states have been allocated 200 crore each.

Besides, 7,400 crore has been allotted for other states in proportion to their share of central taxes, as per the requisition announced by the 15th Finance Commission for 2021-22. The remaining 5,000 crore is allocated for providing incentives to states that monetise or recycle infrastructure assets and initiate disinvestment of state PSEs. “States will receive interest-free 50-year loan ranging from 33% to 100% of the amount realised by them, through asset sale, listing and disinvestment,” the finance ministry said.

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