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Informist, Thursday, Jan. 23, 2025

 

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--Fin min source: Sanctioned INR 1.15-tln capex loans to states so far FY25
--Fin min source: Released INR 1 tln of capex loans to states so far in FY25
--CONTEXT: Govt allocated INR 1.5 tln of capex loans to states for FY25
--Fin min source: Shall be able to release full FY25 state capex loan amount
 

 

By Priyasmita Dutta

 

NEW DELHI – The Centre has accelerated disbursement of 50-year interest-free loans to states under the Scheme for Special Assistance to States for Capital Expenditure and released INR 1 trillion to states so far in 2024-25 (Apr-Mar), a senior finance ministry official said Thursday. The released amount is sharply higher than the amount released in the corresponding period last year, the official told Informist, on the condition of anonymity.

 

In Apr-Jan last year, the Centre had released INR 667.45 billion to states, according to the Department of Expenditure's monthly summary report. The Union Budget for FY25 had set aside INR 1.50 trillion for disbursal to states for capital expenditure under this scheme. The allocation was part of the government's total capital expenditure target of INR 11.11 trillion for FY25.

 

So far in FY25, the Centre has sanctioned around INR 1.15 trillion to states as loans for capital expenditure, the official said. This was higher than the full amount of INR 1.10 trillion released as loans to states in FY24. "The loan amount disbursed in January includes funds for reform-based conditions and for fulfilling capex spending last year, which is also one of the conditions," the official added. 

 

Typically, the special assistance scheme to states for capital investment has multiple parts, with the majority of it being untied or simply based on the 15th Finance Commission's recommendation for states' share in central taxes. The other parts are conditional on the fulfilment of reforms and infrastructure development.

 

RELAXED CONDITIONS

Unlike previous years, the Department of Expenditure under the finance ministry had lowered the untied portion of the states' capital expenditure loans to INR 550 billion, or 37% of the overall loans to be released in FY25. Last year, the government had kept INR 1.00 trillion, or 77% of the total loans of INR 1.30 trillion, as untied.

 

However, after the slow pace of public spending due to General Election-related restrictions and higher conditionality of loans, the Centre has eased the conditions in order to give more flexibility to states to be eligible for the funds. The revised norms, communicated to states in December-end, the official said, include additional allocation of up to 50% of the amount already allocated under the untied category for states that have faced natural disasters of severe nature in FY25. "This amount would have to be used by the affected states for reconstruction of infrastructure, preferably in disaster-affected districts and for projects to mitigate future disasters," the guideline said. 

 

States that have utilised the first instalment under the untied category and have availed the second instalment would also be provided an additional allocation of up to 100% of the original allocation to the North East and Hill States and 50% for the original allocation for other states, on a first-come-first-serve basis, it added. These two amendments would substantially increase the total share of untied loans to states as against the initial allocation of INR 550 billion. 

 

The Centre also eased several conditions of the "tied" portion, including norms related to prior capital expenditure achievement by states. Key changes included conditions related to urban and rural infrastructure projects and incentives for implementation of the SNA SPARSH Model for just-in-time release of funds under centrally sponsored schemes. These would ensure that loans earmarked for these purposes would be fully utilised by states, the guidelines said. Conditions pertaining to scrappage of old vehicles were also amended, with new incentives included for non-government vehicle scrapping as well. 

 

WAY FORWARD

Because of the conditions related to the "tied" portion of the loans and the subsequent slow pace of disbursal, there were apprehensions about whether the states would get the entire budgeted INR 1.50 trillion loans in FY25. Allaying these worries, the official said that after the relaxed norms, the Centre is fairly confident that the entire amount will be released to states by March-end. 

 

Launched in the Budget for FY22, the Scheme for Special Assistance to States for Capital Investment is in line with the government's thrust on capital expenditure to drive economic growth. 

 

Given the success of the scheme, the official said that the government will likely continue the scheme in the coming year. However, within the finance ministry, there is a difference in views about whether the allocation under the scheme should be hiked or maintained at the current level. "Some believe it should be hiked to INR 1.70 trillion, keeping it in line with the growth in economy," the official said. The final decision will be announced on Feb. 1 when Finance Minister Nirmala Sitharaman presents the Budget for FY26.  End

 

Edited by Tanima Banerjee

 

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