Special Assistance Scheme

March 3, 2025

Recently, the Government of India has allocated funds to states under the Special Assistance scheme. This programme is designed to aid states financially through interest-free loans for 50 years. The scheme aims to promote capital investment and support state-led reforms.

Overview of the Special Assistance Scheme

The Special Assistance scheme was launched in the financial year 2021.
Initially, it had an allocation of ₹12,000 crore. Over the years, this amount has increased dramatically.
By FY24, the allocation reached ₹1.3 trillion, with ₹30,000 crore tied to specific outcomes.
The funding supports states in post-pandemic recovery and infrastructure development.

Allocation and Distribution of Funds

For the current fiscal year, ₹1.25 trillion was allocated.
Nearly 97% of this amount has been approved for distribution.
A third of the funds, approximately ₹55,000 crore, is allocated based on states’ shares of central taxes.
The remaining ₹95,000 crore is contingent on states meeting specific reform criteria.

Reform Requirements for Fund Access

States must fulfil mandatory requirements to receive funding. These include compliance with Centrally Sponsored Schemes and ensuring transparency in fund management. Key reforms involve developing iconic tourist centres, incentivising vehicle scrappage, and enhancing industrial growth.

Top Recipients of Assistance

Uttar Pradesh, Bihar, Madhya Pradesh, and West Bengal are the leading beneficiaries of the scheme.
During the first ten months of FY25, Uttar Pradesh received ₹13,042 crore, while Bihar and Madhya Pradesh received ₹12,907 crore and ₹10,635 crore, respectively.

Economic Context and Implications

India’s GDP growth has shown fluctuations. In the September quarter, growth dropped to 5.4%, the slowest in two years. However, a rebound occurred in the December quarter, with growth rising to 6.2%. The acceleration of interest-free loan approvals is seen as a strategy to boost state spending and overall economic growth.

Future Outlook

The Special Assistance scheme is expected to continue playing a vital role in enhancing state capabilities. As states implement reforms and improve infrastructure, the potential for economic growth increases. The government’s focus on outcome-based funding may further encourage states to meet reform targets.

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