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Informist, Wednesday, Jul 24, 2024

 

--Fin secy: 950 bln rupees out of capex loan to states will be tied

--Fin secy: Norms for tied-up portion of capex loan by early Aug

--Fin secy: State capex loans to be tied to farm, urban land reforms

--Fin secy: State capex loans to be tied to industrial land reforms

 

By Priyasmita Dutta and Sagar Sen

 

NEW DELHI – The Centre has finalised the modalities for releasing the majority chunk--the tied-up portion of the 1.50 trln rupee interest-free loans to states for capital expenditure in 2024-25 (Apr-Mar)--making them aligned to the Budget announcements made on Tuesday, Finance Secretary T.V. Somanathan said today. "The modalities are slightly changed from what they were previously. They will be tied to reforms that are announced in the Budget," Somanathan said.

 

Finance Minister Nirmala Sitharaman, while presenting the Budget for 2024-25 in Lok Sabha, increased the allocation of interest-free loans to states for capital expenditure by 200 bln rupees from what was proposed in the Interim Budget presented in February. "We will encourage states to provide support of similar scale for infrastructure, subject to their development priorities," Sitharaman said in her speech. 

 

 

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 and the other parts conditional on fulfilment of reforms and infrastructure development.

 

However, this year there is a break from tradition. In the Interim Budget, Sitharaman had announced that 550 bln rupees of the entire loan amount would be for the 'untied' portion. The remaining 950 bln rupees will be tied to modalities that will be shared with states by early August, Somanathan said. 

 

A chunk of the 950 bln rupees capital expenditure loans to states will be tied to three new land reform areas, the finance secretary said. The first condition is linked to industrial land use regulations, under which, states can tap for funds on efficient usage of land. 

 

"We have a scarcity of land, and it is expensive. We will keep some funds tied to planning of industrial parks," Somanathan said.

 

In her Budget speech on Tuesday, Sitharaman had said that this "government will facilitate development of investment-ready "plug and play" industrial parks with complete infrastructure in or near 100 cities, in partnership with the states and private sector, by better using town planning schemes."
 

The second new condition for the release of capital expenditure loans is linked to digital public infrastructure for agriculture, he said. This is in line with Sitharaman's announcement that the centre, along with states, will implement digital public infrastructure in agriculture for coverage of farmers and their lands in three years.

 

The final new condition that the centre will introduce this year is linked to urban and rural land reforms. Like the other two conditions, this is also in tandem with Sitharaman's Budget announcement of making rural and urban land related reforms. 

 

Rural land related actions will include establishment of a land registry, and linking to the farmers' registry, she said. "These actions will also facilitate credit flow and other agricultural services." While for the urban areas, she announced an information-technology based system for property record administration, updating, and tax administration. "These will also facilitate improving the financial position of urban local bodies."

 

Considering now more than 63% of the interest-free loans earmarked for capital expenditure are linked to conditions, the chances of utilisation is slimmer. In 2023-24, out of the 1.3 trln rupees that the centre had earmarked for capital expenditure loans to states, 1.1 trln rupees was disbursed by the end of the year. "We may see a similar trend this year as well," he said. "Conditional is conditional...so everybody won't get everything". 

 

There may be some shortfall on the conditional part but by how much cannot be predicted right now, he added.

 

According to the finance ministry, the Centre has disbursed loans amounting to 151.20 bln rupees to states up to Jul 17. 

 

First launched in the Budget for 2021-22, the scheme for special assistance to states to carry out capital investment is in line with the Narendra Modi government's thrust on capex to drive economic growth. This 1.50-trln-rupee allocation to states as loans for 2024-25 is part of the government's total capital expenditure target of 11.11 trln rupees for 2024-25.  End

 

Edited by Akul Nishant Akhoury

 

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