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Informist, Thursday, Aug 22, 2024

 

By Priyasmita Dutta

 

NEW DELHI – The finance ministry has communicated to states the modalities for releasing 900 bln rupees of "tied" portion of the 1.50-trln-rupee 50-year interest-free loan to them for capital expenditure in 2024-25 (Apr-Mar), a senior official said. "The government has shared the guidelines with states for releasing 900 bln rupees for now, conditions for 50 bln rupees is pending and will be shared soon," the official told Informist.

 

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, taking a break from the usual, in 2024-25 the finance ministry allocated 550 bln rupees to states as "untied" portion of the loan, or 37% of the full amount. The conditions for the release of 900-bln-rupee of loans are divided into 12 parts. Last year, the government had kept 1.00 trln rupees or 77% of the total loans of 1.30 trln rupees as untied. Last year's total allocation has since been revised downward to 1.06 bln rupees.

 

This is also the first time the finance ministry is allowing states to use the funds to complete projects from the previous year. It is also the first time that tourism-related developments have made an entry to the list of conditions.

 

Out of the 900 bln rupees, a major chunk of 250 bln rupees will be released to states for achieving over 10% yearly growth in capital expenditure in 2023-24 and for achieving over 10% on-year growth in capital expenditure in the first six months of the current financial year.

 

The Centre has earmarked 150 bln rupees for progress of states in completion of major urban and rural infrastructure projects like railway, metro rail, highway, and power sector projects. The Centre has kept another 150 bln rupees of capex loans conditional on changes in industrial policies in states to spur economic growth through reforms in building regulations for industrial and commercial buildings, the official said.

 

These three conditions, which form the majority of the tied portion, indicate the Centre's push towards states to undertake "meaningful and transformational capital expenditure," the official said.

 

The remaining conditions include development of iconic tourist centres in states, scrapping of old vehicles, development of national capital region, undertaking land-related reforms in rural and urban areas, digitisation of rural land records, creating state farmer's registry, construction of working women's hostels and lastly, implementing Centre-developed Single Nodal Agency model in states for managing their finances better.

 

These conditions have loan amounts worth 10-50 bln rupees earmarked for them.

 

Finance Minister Nirmala Sitharaman had said in Parliament earlier this month that these 50-year interest-free loans to states may later be treated like grants. Unlike loans, grants are not repaid.

 

Explaining Sitharaman's statement, the finance ministry official said that what is worth 1.5 trln rupees today will likely be reduced to a paltry amount over the next 50 years due to inflation. Besides, there is no interest burden for states. So, there is a possibility that the loans will be waived off ahead of repayment.

 

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 capital expenditure 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.

 

The Modi government has been going big on its capital expenditure outlay in the past few budgets to crowd-in private investment. In the last five years, the government has increased capital expenditure by more than three times.  End

 

Edited by Ashish Shirke

 

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