Informist, Monday, Mar 4, 2024

By Priyasmita Dutta and Sagar Sen

NEW DELHI – The finance ministry has communicated to states the modalities for releasing half of the 1.30-trln-rupee 50-year interest-free loan to them for capital expenditure in 2024-25 (Apr-Mar), a senior official said. "The government has shared the guidelines with states for releasing 650 bln rupees for now, scheme guidelines for the other parts under the scheme will follow," the official told Informist.

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 and the other parts conditional on fulfilment of reforms and infrastructure development.

In her 2024-25 Budget speech, Finance Minister Nirmala Sitharaman said a provision of 750 bln rupees of the 50-year interest-free loan would be set aside for milestone-linked reforms by state governments. Of this 750 bln rupees, the Centre has decided to disburse 50 bln rupees upon the completion of select projects from the previous year, and 50 bln rupees for development of iconic tourist centre of global scale, the official said.

This is the first time the finance ministry has allowed states to use the funds to complete projects from the previous year. It is also the first time that tourism-related developments have made an entry to the list of conditions. "States will be encouraged to take up comprehensive development of iconic tourist centres, branding and marketing them at global scale," Sitharaman had said in her Budget speech last month.

States have also been communicated the conditions to avail the remaining 550-bln-rupee untied part of the special assistance for capital investment.

Unlike previous years, the expenditure department under the finance ministry has 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. Last year's total allocation has since been revised down to 1.06 bln rupees.

Besides lowering the untied portion of the loan, the Centre has also told states that the funds will be disbursed in two tranches. The first tranche of 66% will be given based on approval for capital projects submitted by states, while the remaining 34% will be provided only after 75% utilisation of the first instalment by states.

Of the untied portion, Uttar Pradesh will get the highest share at 98.66 bln rupees, followed by Bihar at 55.32 bln rupees, Madhya Pradesh at 43.18 bln rupees, West Bengal at 41.38 bln rupees, and Maharashtra at 34.74 bln rupees.

First launched in the Budget for 2021-22, the scheme for special assistance to states to carry out capital investment is in line with the Narendra Modi government's thrust on capex to drive economic growth. This 1.30-trln-rupee allocation to states as loans for 2024-25 is part of the government's total capital expenditure target of 11.11 trln rupees for 2024-25. End

Edited by Avishek Dutta

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