16 states receive Rs 560.41 billion for capital investment

It was stated by the finance ministry that the intention behind this approval is to achieve a higher multiplier effect of capital expenditure by advancing the spending by states. The amount has been sanctioned for 16 states, namely Arunachal Pradesh, Bihar, Chhattisgarh, Goa, Gujarat, Haryana, Himachal Pradesh, Karnataka, Madhya Pradesh, Mizoram, Odisha, Rajasthan, Sikkim, Tamil Nadu, Telangana, and West Bengal.

The approval has been granted under the scheme known as 'Special Assistance to States for Capital Investment 2023-24'. This scheme, which was announced in the Budget for 2023-24 as a continuation of the efforts made in the past three years to boost capital expenditure, provides special assistance to state governments in the form of a 50-year interest-free loan amounting to a total of Rs 1.3 trillion during the financial year 2023-24.

The scheme consists of eight parts, with Part-I being the largest, offering a grant-like special capital expenditure facility. Under this part, the allocated amount has been distributed among the states based on their share of central taxes and duties as per the 15th Finance Commission's award. The other parts of the scheme are either linked to reforms or dedicated to sector-specific projects.

The emphasis on capital expenditure or capex by the central government, particularly for states, holds significance considering that several states, including Andhra Pradesh, Maharashtra, Uttar Pradesh, and Kerala, failed to meet the target for actual capex in various areas despite receiving the required funds from the central government in FY2023.

A recent report by Bank of Baroda revealed that out of the available data for 25 states, 14 states accomplished less than 75 percent of the target in FY2023, despite budgeting Rs 7.49 trillion. They only spent Rs 5.71 trillion, which is 76.2% of the total amount. On the other hand, the central government successfully achieved its capex target in different sectors and also disbursed loans to states for capex. In FY23, the central government's capital expenditure surpassed the revised estimate of Rs 7.28 lakh crore by Rs 85.51 billion.

Frontloading funds for capex is crucial for states this financial year as some of them are heading into elections later this year, followed by general elections next year.

An expert stated that states require a certain level of certainty regarding their revenue flow in order to determine their respective expenditures, as revenue expenditure constitutes a significant portion of their expenses.

To enhance resources for states and accelerate capital expenditure, the central government has also advanced tax devolution to the first quarter of FY24 compared to previous years when such releases were made in the second quarter.

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