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Informist, Tuesday, Apr. 15, 2025

 

NEW DELHI – The finance ministry has issued guidelines for the release of 50-year interest-free loans to states and union territories for capital expenditure in 2025-26 (Apr-Mar). Out of the INR 1.50 trillion earmarked for the scheme in FY26, INR 570 billion, or 38%, will be "untied", a senior finance ministry official said. Of the "tied" or conditional part, the government has issued modalities for the release of INR 300 billion and the conditions for the remaining part will be shared later, the official told Informist.

 

Typically, the special assistance scheme to states for capital investment has multiple parts, with 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. Since FY25, however, the finance ministry has cut down the "untied" allocation of the scheme.

 

Out of the INR 570-billion "untied" portion, the first installment of 66% will be released on meeting mandatory conditions, while the second installment of 34% will be released after 75% of the fund utilisation from the first installment and refund of central share in state nodal agency account of all centrally sponsored schemes migrated to SNA SPARSH by Mar. 31, 2025, according to a document seen by Informist.

 

Within the INR 300 billion allocation for "tied" part of the scheme, INR 150 billion will be available to states who achieve 10% on year growth in capital expenditure in FY25 and achieve a growth rate of over 10% year-on-year in Apr-Dec. In FY25, the Centre had kept INR 250 billion for achievement of a state's own capital expenditure.

 

The finance ministry has also allocated INR 100 billion for completion of major urban and rural infrastructure projects under various schemes like Jal Jeevan Mission, PM-Gram Sadak Yojana. States and union territories will have to submit a list of projects by Oct. 15 for release of funds tied to this condition.

 

The Centre has also earmarked INR 50 billion for completion of capital projects in previous years. These capital projects are housing and police personnel or police stations in urban areas, construction of unity malls, construction of children's libraries and digital infrastructure, according to the document shared with states last week.

 

First launched in the Budget for FY22, the scheme for special assistance to states to carry out capital investment is in line with the Narendra Modi government's thrust on capital expenditure to drive economic growth. This INR 1.50 trillion allocation to states as loans for FY26 is part of the government's total capital expenditure target of INR 11.21 trillion.

 

The Modi government has been going big on its capital expenditure outlay in the past few budgets to crowd-in private investment. In the last five years, the government has increased capital expenditure by more than three times. In FY25, the government ended up releasing just short of INR 1.50 trillion to states for capex loans, much higher than the revised estimate of INR 1.25 trillion and close to the original target set by the government.  End

 

Reported by Priyasmita Dutta

Edited by Ashish Shirke

 

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