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Question

Difficulty: MediumEconomic Developments, Union & State Budgets, and Economic Surveys

Consider the following statements regarding the 'Scheme for Special Assistance to States for Capital Investment' featured in Union Budgets:

1. Financial assistance under this scheme is extended to state governments in the form of 50-year interest-free loans.
2. The entire financial allocation under this scheme is strictly conditional upon states implementing specified sector reforms, with no untied component.
3. The loans provided under this scheme are counted within the normal annual borrowing ceiling of 3%3\% of Gross State Domestic Product (GSDP) allowed to states.

Which of the statements given above is/are correct?

  1. 1 onlyAnswer
  2. B
    1 and 2 only
  3. C
    2 and 3 only
  4. D
    1, 2 and 3

Answer

Only Statement 1 is correct.
The correct response identifies that only the statement regarding 50-year interest-free loans is true. The scheme provides long-term assistance to state governments for capital projects. The assistance includes an untied portion disbursed in proportion to tax devolution and is granted over and above the normal fiscal deficit limit of 3%3\% of GSDP.

Step-by-Step Solution

1
Evaluate Statement 1 regarding the nature of financial assistance under the scheme.
Statement 1 is correct.
The central government provides assistance under the 'Scheme for Special Assistance to States for Capital Investment' as long-term 50-year interest-free loans to spur infrastructure investment.
2
Evaluate Statement 2 regarding conditionality and reform linkage.
Statement 2 is incorrect.
The scheme comprises both untied allocations (distributed based on XV Finance Commission devolution shares) and tied allocations (linked to specific reforms like urban planning, land reforms, and industrial parks).
3
Evaluate Statement 3 regarding the interaction with GSDP borrowing limits.
Statement 3 is incorrect.
Financial assistance under this special scheme is provided over and above the annual net borrowing limit of 3%3\% of GSDP fixed for the state governments under the fiscal governance framework.

Key Concept

Scheme for Special Assistance to States for Capital Investment
Estimated Time:1m 15s
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Topics

Economic Developments, Union & State Budgets, and Economic Surveys

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