CENTRE TO GIVE ADDITIONAL RS 15,000 CR INTEREST-FREE LOAN TO STATES FOR CAPITAL PROJECTS

by mehekkaoberoi

Background:-

  • Finance Minister Nirmala Sitharaman in her 2021-22 Budget speech said that to incentivize states to take to disinvestment of their public sector companies
  • Disinvestment in Public sector undertakings in India is a process of public asset sales done by the President of India on behalf of the Government of India. It can be directly offered for sale to the public or indirectly done through a bidding process.
  • The Centre would work out an incentive package of central funds for states. The finance ministry on Friday said it will give an additional Rs 15,000 crore to the states as interest free 50-year loan for spending on capital projects in the current fiscal.
  • A Capital Project is a project that helps maintain or improve a City asset, often called infrastructure.

Linkages:-

  • Similar scheme was introduced last year which resulted in a positive feedback so that’s why its final to give a 50 year no interest loan to states
  • Under the Scheme for Special Assistance to States for Capital Expenditure, financial assistance is provided by the Centre to the state governments in the form of 50-year interest free loan.
  • As against Rs 12,000 crore earmarked for the scheme for the financial year 2020-21, a sum of Rs 11,830.29 crore was released to the states.
    “In view of the positive response to the scheme and considering the requests of the state governments, the government has decided to continue the scheme in the year 2021-22,” the ministry said.

Current Scenario:-

  • North east region getting more amount is justifiable as that is the most under developed region right now
  • As you can see currently there was a shortage of oxygen production so this amount will encourage states to build more oxygen Gas Plant,
    Roads which are partially completed may get complete with the help of fund
  • As they are allowed to use this fund to settle any pending bills on on-going capital projects they may use the unused fund as they may want to Currently in many states there are too many capital projects going on which are in WIP

Impact:-

  • Positive
    – States will be relieved which are in Debts after getting the funds for Zero Interest
    – Northeast region will benefit the most as there is a lot of things which one can do
    – This getting funds for zero interest will increase the development of the Infra Sector and this will attract FDIs
    – GDP will stay stable or will grow as the growth is guaranteed if the money spent by states will be for Capital projects as it will create employment
    – Rural areas will get developed as Govt will try to develop the undeveloped region first as it will not only develop the area as well as employment to their people

  • Negative
    – There are already way too many ongoing capital projects are happening
    – The states which may not earn a lot with their Capital Projects may end up not giving back the funds with zero interest
    – Disinvestment may occur like state to state they can use the money as they want as they have 50 years to pay it back
    – Inflation may happen as due to sudden growth in development will increase the demand for raw materials and manpower which will trigger inflation

Content Contributed by Abhijeet Dhakane

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