Informist, Monday, Apr 22, 2024

By Priyasmita Dutta

NEW DELHI – States were relatively comfortably placed for cash in the first half of last financial year as the Centre front-loaded both tax devolution and interest-free capital expenditure loans to them. However, in the current financial year started April, the Centre is likely to delay the release of capex-related loans because of the conditions attached with the release of funds, a senior finance ministry official said today.

"This year, the major part of the loan is 'tied' to reform-related measures. Reforms take a long time to take off...so the release of funds from the Centre will also take time," the official told Informist.

For 2024-25 (Apr-Mar), the Centre has pegged the outlay for 50-year interest-free loans to states for capital expenditure at 1.3 trln rupees. Unlike previous years, the expenditure department under the finance ministry has cut 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. Informist had, on Mar 4, reported the modalities for the release of 50% of the funds in the current fiscal that has been finalised so far.

"The Centre wants funds to be utilised well. We have given a major push for completion of projects this year. The funds will be released only on completion of projects which are mentioned in the modalities," the official said. "This process will delay the rampant demand for funds," the official added.

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 Apr-Jun of 2023-24, the Centre had approved loans worth 564 bln rupees for 16 states.

The official said that the finance ministry will first monitor how states perform in undertaking the reforms in the first few months of the current fiscal, and if it sees a need for revision in the allocation, they may do it in the full Budget that will be presented after the General Elections.

"Since the modalities this time are so many, the release of funds will take time...so we hope that they absorb the 1.3 trln rupees first. This allocation is a good amount in itself, and it looks unlikely that it will go further up," the official said.

In 2023-24, as against the 1.06 trln rupees earmarked as capex loans for states, the Centre had finally released 1.10 trln rupees, the official said.

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 Akul Nishant Akhoury

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.

Informist Media Tel +91 (11) 4220-1000

Send comments to feedback@informistmedia.com

© Informist Media Pvt. Ltd. 2024. All rights reserved.