FM Sitharaman renews Centre’s outreach to states, continues 50-yr interest free loan
The government also announced in the Budget that “states will be allowed a fiscal deficit of 3.5% of GSDP (Gross State Domestic Product) of which 0.5% will be tied to power sector reforms”.
Renewing the Centre’s outreach to the states ahead of a series of assembly elections and the 2024 Lok Sabha polls, finance minister Nirmala Sitharaman proposed to continue the Union government’s 50-year interest free loan for states by another year.
The government also announced in the Budget that “states will be allowed a fiscal deficit of 3.5% of GSDP (Gross State Domestic Product) of which 0.5% will be tied to power sector reforms”. Sitharaman said cities will be enabled to improve their credit-worthiness for municipal bonds.
“I have decided to continue the 50-year interest free loan to state governments for one more year to spur investment in infrastructure and to incentivise them for complementary policy actions, with a significantly enhanced outlay of ₹1.3 lakh crore,” she said presenting the Budget in the Lok Sabha.
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Last year, the Centre had earmarked ₹80,000 crore under the scheme for states to undertake capital investments. The scheme was aimed to give priority to the PM Gati Shakti Master Plan that improves multi-modal and last-mile connectivity.
Sitharaman said the entire 50-year loan to states has to be spent on capital expenditure within 2023-24. Most of this will be at the discretion of the states, but a part will be conditional on them, increasing their actual capital expenditure. Parts of the outlay will also be linked to, or allocated for, the specific purposes.
Read: Union Budget 2023: Read Nirmala Sitharaman's full speech here
These include: Scrapping old government vehicles, urban planning reforms and actions, financing reforms in urban local bodies to make them credit-worthy for municipal bonds, housing for police personnel above or as part of police stations, constructing unity malls, children and adolescents’ libraries and digital infrastructure, and the state share of capital expenditure of central schemes.
Like the Rural Infrastructure Development Fund, an Urban Infrastructure Development Fund (UIDF) will be established through the use of priority sector lending shortfall.
This will be managed by the National Housing Bank, and will be used by public agencies to create urban infrastructure in Tier-2 and Tier-3 cities. States will be encouraged to leverage resources from the grants of the 15th Finance Commission, as well as existing schemes to adopt appropriate user charges while accessing the UIDF. “We expect to make available ₹10,000 crore per annum for this purpose,” Sitharaman said in her speech.
The announcements come in the backdrop of the RBI’s report on state finances that said the debt burden of the states has reduced from 31.1% to 29.5% of the GDP in the wake of the 20% threshold set by the FRBM (fiscal responsibility and budget management) committee in 2018 and states put more money into capital expenses in FY22-23 compared to the previous three years.