Budget 2024: Centre ups allocations for interest-free loans to states for capital expenditure to ₹1.5 trillion

New Delhi: The Centre on Tuesday said it has raised the allocations for interest-free loans to states for capital expenditure, enabling states to spend more on infrastructure and reform measures.

During her budget speech, finance minister Nirmala Sitharaman said the allocations will stand at ₹1.5 trillion for FY25, up from ₹1.3 trillion targeted in the interim budget.

On 18 June, Mint reported the Centre was considering raising the allocations by 20-30% for the 50-year, interest-free loans to states in the annual budget, compared with the interim budget allocations.

The revised allocation was made possible by the record  ₹2.11 trillion dividend that the Centre received from the Reserve Bank of India (RBI) in May.

A big chunk of these loans, introduced in FY21, has been linked to the economic reforms that the Centre wants states to carry out since FY23.

Also Read: Budget 2024: ‘ ₹3 lakh crore schemes, hostels’, Nirmala Sitharaman’s big push for women

In the latest iteration, several existing reforms linked to the scheme are likely to be scrapped, and new ones added to the list to help better implement policies at the state level.

In the interim budget for 2024-25 announced on 1 February, the Centre had earmarked  ₹1.3 trillion for “special assistance to states for capital investment”, similar to FY24.

Of this amount, a chunk of  ₹75,000 crore, or 58%, is linked to “outcomes and reforms” by states.

The remaining  ₹55,000 crore in the interim budget came with simple conditions that were not reforms-linked.

Current reforms that states must meet include those in the housing sector, incentives for scrapping old government vehicles and ambulances, reforms in urban planning and urban finance, increasing housing for police personnel, and setting up libraries with digital infrastructure at panchayat and ward levels for children and young adults.

Check Union Budget 2024 Live Updates here

States have to put in 20-25% of the overall infrastructure spending, a key focus of the Centre. The easy loans have helped states stimulate capital spending and catalyze the economy after the pandemic.

The scheme for ‘special assistance to states for capital investment’ was launched in FY21 with an allocation of   ₹12,000 crore to help states after the pandemic.

The Centre stepped up the allocation to the scheme to  ₹15,000 crore in FY22 and dramatically scaled that up to   ₹1.07 trillion in FY23 with   ₹27,000 crore linked to specific reforms by states.

Also Read: Economic Survey and Union Budget 2024 — What is the importance, differences & more explained

In FY24,   ₹1.3 trillion was earmarked for the scheme, with about   ₹30,000 crore of that allocation marked as outcome-based.

The remaining   ₹1 trillion had the same condition as is being proposed for FY25—states have to ensure that the loan is used to supplement their capex and not to substitute it.