Informist, Thursday, Aug 22, 2024

--Fin min source: Gave states 200 bln rupees so far as FY25 capex loan

--CONTEXT: Govt aims to give states 1.5 trln rupees as capex loan FY25

--Source: Sanctioned 350-bln-rupee capex loans to states so far FY25

By Priyasmita Dutta and Krity Ambey

NEW DELHI - The Centre has released around 200 bln rupees to states so far in 2024-25 (Apr-Mar) as part of the Scheme for Special Assistance to States for Capital Expenditure in the form of 50-year interest-free loans, a senior finance ministry official said. The Union Budget had set aside 1.50 trln rupees to be disbursed to states for capital expenditure under this scheme. The allocation is part of the government's total capital expenditure target of 11.11 trln rupees for 2024-25.

So far, the Centre has approved around 350 bln rupees to states as loans for capital expenditure, lower than what the government had approved in the corresponding period last year. "This year, disbursements will take some time until capital expenditure returns in its full swing... especially because of the slowdown in spending due to Model Code of Conduct," the official told Informist.

"From here on, it is expected that capex will improve," the official said.

The Model Code of Conduct came into effect on Mar 16, and central and state governments could not announce new investments, but could only take forward the projects already underway. The Lok Sabha elections were held from Apr 19 to Jun 1, with the results announced on Jun 4.

The 200 bln rupees released to states so far this fiscal year is majorly part of the "untied" portion of the scheme, the official said, adding that a few states have availed funds from the "tied" portion. 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.

Owing to the slow pace of capital expenditure so far and considering the majority portion of the loans were linked to certain conditions, there are doubts in certain quarters about whether the entire 1.5 trln rupees will be absorbed by states. To this, the official said that the adverse effect of elections and the following bureaucratic reshuffles impacted the loans so far and only after six months of observation can the government take a call on whether 1.5 trln rupees would be fully utilised.

The official, however, said that while on the one hand, because of the conditions involved, the disbursements might take time and the government might be left with some funds by the end of the year, on the other hand, the conditions are aligned with states' reforms and so, they may expedite infrastructure spending and ensure the entire earmarked amount is absorbed.

Unlike previous years, the expenditure department under the finance ministry had lowered the untied portion of the loan to 550 bln rupees or 37% of the overall loan in 2024-25. Last year, the government had kept 1.00 trln rupees or 77% of the total loans of 1.30 trln rupees as untied.

First launched in the Budget for 2021-22, 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. The total amount disbursed under the scheme last year was 1.10 trln rupees, against the Budget estimate of 1.06 trln rupees. End

Edited by Avishek Dutta

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