Informist, Thursday, Jul 4, 2024
--Fin min source:Gave states 150 bln rupees so far as FY25 capex loan
--CONTEXT: Govt aims to give states 1.3 trln rupees as capex loan FY25
By Priyasmita Dutta
NEW DELHI - The Centre has released 150 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 today. The Interim Budget had set aside 1.30 trln rupees to be disbursed to states for capital expenditure under this scheme. This allocation was part of the government's total capital expenditure target of 11.11 trln rupees for 2024-25.
Informist had earlier reported that the Centre has approved 300 bln rupees to states as loans for capital expenditure, but the release was put on hold as the Model Code of Conduct was in force ahead of the General Election.
"The finance ministry released loans to states quite aggressively in the second half of June and this month, based on demands by states," the official told Informist. "Infrastructure spending went up steadily in the second half of June and will sustain in July. The Model Code of Conduct before this (June) halted spending, so now the pent-up momentum is leading to robust groundwork," the official added.
The Model Code of Conduct came into effect on Mar 16. Central and state governments could not announce new investments, but could only take forward the projects already underway. The Lok Sabha elections were scheduled from Apr 19-Jun 1 and the results were announced on Jun 4.
Few states even put forth their demands for capital expenditure loans at the pre-Budget consultation meeting with the finance ministry. "We processed the demands immediately and released the funds for the states, accordingly," the official said. On Jun 22, Finance Minister Nirmala Sitharaman and other senior finance ministry officials met representatives of states as part of the Budget making exercise.
The 150 bln rupees released to states so far this fiscal are majorly part of the "untied" portion of the scheme, the official said. A few states have availed funds from the "tied" portion, 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 to fulfilment of reforms and infrastructure development.
Unlike the previous years, the expenditure department under the finance ministry had lowered the untied portion of the loan to 550 bln rupees or 42% 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.
While the Centre has communicated to the states the conditions for releasing 50% of the total sum earmarked as loans for 2024-25, the official said the remaining guidelines will be shared only after the Budget. "The second half will be majorly linked to the tied portion. Detailed conditions for fund release will be shared later in July or may be in the first week of August," the official said. Sitharaman will likely present the Budget for 2024-25 in the third week of this month.
At the meeting of states with the finance ministry, a few states put forth the request to hike the allocation of interest-free loans by another 200 bln rupees to 1.50 trln rupees for the current fiscal. However, the official said that the 1.30 trln rupees allocation is almost 20% higher than the total loans disbursement in 2023-24 and is adequate. "They will always have requests for more funds, it is their right to seek more funds, but 1.30 trln rupees is enough as of now," the official said.
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 Vandana Hingorani
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