Madhya Pradesh and Andhra Pradesh have become the first group of states to complete three out of the four citizen-centric reforms stipulated by the department of expenditure, ministry of finance. The two states have completed the One Nation, One Ration Card reforms, Ease of Doing Business reforms, and Urban Local Bodies reforms.

Consequent upon completion of reforms in the three sectors, the department of expenditure, ministry of finance, has decided to provide additional financial assistance amounting to Rs. 1,004 crore to these States under the newly launched scheme of Special Assistance to States for Capital Expenditure.

Andhra Pradesh will get an additional amount of Rs.344 crore while Madhya Pradesh has become entitled to receive Rs.660 crore for capital projects. The scheme was announced by finance minister Nirmala Sitharaman on October, 12 as part of Aatma Nirbhar Bharat package. The additional financial assistance for the capital expenditure is in addition to the permission of Rs.14,694 crore issued to these States for extra borrowings for completing the reforms.

The scheme of Special Assistance to States for Capital Expenditure is aimed at boosting capital expenditure by the state governments who are facing difficult financial environment this year due to the shortfall in tax revenue arising from the Covid-19 pandemic. Capital expenditure has a higher multiplier effect, enhancing the future productive capacity of the economy, and results in a higher rate of economy growth.  Therefore, despite the adverse financial position of the Central Government, it was decided to extend a special assistance to the State Governments in respect of capital expenditure, in financial year 2020-21.  

The scheme has got very warm response from the state governments. So far capital expenditure proposals of Rs. 9,880 crore of 27 states have been approved by the ministry of finance. An amount of Rs. 4,940 crore has already been released to the states as the first instalment under the scheme. Tamil Nadu has not availed the benefit of the Scheme.  

The capital expenditure projects have been approved in diverse sectors of economy like, health, rural development, water supply, irrigation, power, transport, education and urban development.  

The scheme has three parts.  Part–I of the scheme covers the northeastern and hill States. Under this part, Rs.200 crore is allocated to each of the seven states of Arunachal Pradesh, Meghalaya, Manipur, Mizoram, Nagaland, Sikkim and Tripura, and Rs.450 crore each is allocated to Himachal Pradesh and Uttarakhand.  In view of higher population and geographical area, Assam has been provided enhanced allocation of Rs.450 crore under the scheme.

Part-II of the scheme is, for all other states not included in Part-I. An amount of Rs.7,500 crore is earmarked for this part. This amount has been allocated amongst these states in proportion to their share of central tax as per the interim award of the 15th Finance Commission for the year 2020-21.

Part-III of the sheme is aimed at pushing various citizen-centric reforms in the states.  Under this part, an amount of Rs. 2,000 crore is earmarked. This amount will be available only to those states which carry out by December 31, 2020, at least three of the four specified reforms.