Economy
Centre to release about ₹50,000 cr- ₹70,000 cr of interest-free capex loans to states in Q3, FY25
Summary
- Both expenditure and growth slowed down during the first two quarters due to the general elections.
New Delhi: The Union government is likely to release ₹50,000 crore to ₹70,000 crore to states as part of its ‘special assistance for capital investment’ scheme in the three months to December (Q3, FY25), to be used for ramping up capital expenditure, two people aware of the matter said.
With both expenditure and growth slowing down during the first two quarters due to the general elections, these funds are aimed at boosting capex spending by states, especially on infrastructure projects in order to aid overall growth.
"The disbursement of these interest-free loans has been delayed due to the general elections (during the Q1, FY25 period) and a large chunk of it will be done in Q3, FY25 quarter," the first person mentioned above said, requesting anonymity.
"However, the disbursal of a significant portion of the Capex loan is dependent on the states' performances on certain fronts," the person added.
Introduced in FY21, the interest-free loan with a tenure of 50 years has played a vital role in stimulating capital spending by states and catalyzing the overall economy in the aftermath of the pandemic.
Also read: Government capex to pick up, says finance ministry’s Economic Review for August
In FY24, as many as 16 states opted for the loan scheme—Arunachal Pradesh, Bihar, Chhattisgarh, Goa, Gujarat, Haryana, Himachal Pradesh, Karnataka, Madhya Pradesh, Mizoram, Odisha, Rajasthan, Sikkim, Tamil Nadu, Telangana and West Bengal.
Last July, during her budget speech, the 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.
To be sure, of this amount, a chunk of about ₹88,000 crore, or 58%, is linked to “outcomes and reforms" by states.
Reforms states were required to meet to claim a portion of the interest-free loans include those in the housing sector, incentives for scrapping old government vehicles and ambulances, reforms in urban planning and urban finance, housing for police personnel, and setting up libraries with digital infrastructure at panchayat and ward levels for children and young adults.
For loans not linked to specific reforms, one criterion that is followed is that they would be given for projects that are set to be completed within the fiscal year.
Meanwhile, several existing reforms linked to the scheme from the previous years are likely to be scrapped, and new ones added to help the Centre better implement its policies at the state level, the second person mentioned above said, requesting anonymity.
Also read: Capex mood picks up in Q2, but revival isn't broad-based
"However, states must ensure that they don’t use these funds as a substitute for their capex," the second person added.
A finance ministry spokesperson didn't respond to emailed queries.
Earlier this year, Sitharaman said in an interview with Mint that projects under the scheme are best developed when the capex is used up within 12 months, even though several capital expenditure projects have long gestation projects running into 24 to 36 months or more.
“But the condition we have put is that you spend that money within 12 months. My monitoring clearly showed me that wherever capex is used up by states within 12 months, people have done brilliantly," she added.
Also read: MoSPI's first-ever private capex survey to track investments in 10-15 key sectors
