E-Paper
Interest-free loans to states may be extended
Government may extend interest-free loan for 50 years to states in upcoming budget
New Delhi The central government may extend its ₹1.30 lakh crore interest-free loan for 50 years to states to boost capital expenditure and expedite policy reforms in the coming Budget with growing demand for the fund as 74% of the total corpus for 2023-24 is already sanctioned in just seven months of the current financial year, two officials aware of the development said on Monday.
The scheme – Special Assistance to States for Capital Investment 2023-24 – has been highly successful in creating capital investment projects in states covering health, education, irrigation, water supply, power, roads, and railways. Besides, it also helped in propelling India’s economic growth capital expenditure has a higher multiplier effect, they said requesting anonymity.
Of the total budgeted corpus of ₹1.30 lakh crore in 2023-24, the Union government has already sanctioned over ₹96,200 crore to states under the scheme in the first seven months (April-October) of FY24, one of them said.
“Over 60% of the approved amount has already been disbursed to respective states, based on progress of various projects. It is expected that the entire ₹1.30 lakh crore will be utilised by the end of current financial year,” he said.
“Public investments on infrastructure projects by both the Centre and the states have helped in making India world’s fastest growing major economy. The Modi government’s capex push will, therefore, continue. While the Centre is committed to raising its capex plan even in 2024-25, it needs to incentivise states as projects are implemented there,” the second official said.
While the intent of the government is likely to be announced in the interim budget expected on February 1, 2024, a detailed announcement will take place in the full budget for FY25 (expected around July 2024) after the new government at the Centre is formed after the general elections, the officials said.
According to the official data released on Thursday, India’s GDP grew by 7.6% in the second quarter of FY24, significantly higher than the projections made by a Bloomberg forecast of economists (6.8%) and the Reserve Bank of India’s (RBI) Monetary Policy Committee (6.5%) in October. With an overall 7.7% GDP growth in the first half of 2023-24, India retains the position of the world’s fastest growing major economy.
Experts said that government expenditure must continue to maintain the growth momentum as private investments still to pick up the pace. Commenting on GDP data, a research report of Nomura said: “Overall, the government appears to be in the driver’s seat – both for consumption and investment – while private consumption and private capex remain weak, in our view.”
The Special Assistance to States for Capital Investment 2023-24 scheme offers 50-year interest-free loans to states in addition to their normal annual borrowing limits. “The efficacy of the scheme could be judged by the finance minister’s decision of raising its annual corpus from ₹12,000 crore in 2020-21 to ₹1.3 lakh crore in 2023-24,” the second official said. The corpus of the scheme in 2021-22 was ₹15,000 crore. Subsequently, in 2022-23, it was increased to ₹1.07 lakh crore.
“The Union government’s scheme for special assistance to states for capital investment appears to have gotten traction and a step in the right direction. Recent statistics available from the Department of Economic Affairs states that the FY 23-24 Q1 capital expenditure by the relevant states has increased by 74.3% compared to the corresponding period of the previous year,” said Ashish Suman, partner at JSA Advocates & Solicitors. The scheme also helps the Centre to nudge states to undertake policy reforms such as Make in India initiatives and scrapping of old vehicles.
