18 states get ₹54,000 crore capital expenditure loan

The Center is releasing capital expenditure to the states with conditions like Gati Shakti Facility, PM Gram Sadak Yojana funding.

• The states that have received the sanctioned amount include Maharashtra, Tamil Nadu, Kerala, Karnataka and Haryana.

NEW DELHI : Amid concerns about slowing economic growth that could be spending by states, with more than half of the ₹1 trillion allocated by the Center in the form of interest-free capex loans to states for the current fiscal, Which is already approved in 18 states.

₹1 trillion was allocated as interest-free 50-year capital expenditure loan to states to spend on new or ongoing projects. The pick-up in the sanctioned amount comes amid slow capex offtake by states in the initial months, with 21 states achieving an average of only 15% of the budget target till July.

“We have recently sanctioned around ₹54,000 crore out of ₹1 trillion allocated to states as interest-free loans,” a senior finance ministry official said.

The increase in the sanctioned amount points to a possible revival in job creation in the second half of the financial year.

Capital expenditure along with expenditure on infrastructure projects acts as a multiplier of economic growth. The states which have received the sanctioned amount include Maharashtra, Tamil Nadu, Kerala, Karnataka and Haryana.

To incentivize initial capital expenditure, the Center has also pushed forward tax devolution to the states.

It released two installments of tax devolution to states amounting to ₹1.17 trillion in August, as against the normal monthly transfer of ₹58,333 crore.

The funds provided to the states under the interest free loan can be used for new and ongoing capital projects as well as for settlement of pending bills.

Aditi Nair, chief economist at ICRA Ltd, said while the restrictions are healthy, spending till August has been muted under the interest-free state capex scheme.

"We expect a meaningful pick-up in activity in the post-monsoon months," Nair said.

He said that the question is whether the states will use it for budget capex or for the additional capex which they had used in the budget.

“That is where execution will play a part. How much can they execute this year? If they can execute more than their budget it will be supplementary. Otherwise, it may end up funding the budget for this year anyway," Nair said.

The Center is releasing capital expenditure to states with conditions such as Gati Shakti, funding of PM Gram Sadak Yojana, incentivizing digitization, laying optical fiber cable network, urban reforms, disinvestment and monetization.

“This, combined with a rebound in economic activity, is expected to raise enough revenue for the states to pursue higher capex. Consequently, we expect an improvement in the state's capital expenditure in the coming months," said Rajni Sinha, Chief Economist, CareEdge.

After approval of the list of projects submitted by the state, the first installment of 50 percent amount will be released, while the rest will be given as the second installment after submission of the utilization certificate.

Devendra Kumar Pant, Chief Economist, India Ratings, said there has been a good jump in revenue collection for both the central and state governments, but capital expenditure has not kept the same pace. “One of the major reasons for the slow capex growth is the change in the borrowing limits of the states. Lending by state public sector enterprises is now part of the state's net borrowings."

Even the borrowings of state public sector enterprises made in the previous financial year will be adjusted in the next five years. With revenue expenditure sticky, there is little scope for control and in such a situation, the ax falls on capex," Pant said.

Madan Sabnavis, Chief Economist, Bank of Baroda said, “As we are now in the second half of the year, states will calibrate their capital expenditure with revenue streams.” He said it will accelerate further in the fourth quarter. He said the ban by the Center will provide the basis for states that may face a slowdown in revenue in the form of a reduction in consumption.

While ₹80,000 crore will be allocated to the states for projects chosen by them in proportion to their shares in central taxes and duties as per the recommendations of the 15th Finance Commission), the remaining ₹20,000 crore will be for specific purposes.

Emailed queries to the Finance Ministry remained unanswered till press time.

The Government of India reserves the right to reject any project which, in its opinion, does not possess sufficient economic merit in terms of short-term incentives combined with long-term benefits to the economy,

Projects with a capital outlay of less than ₹5 crore (₹2 crore for NE States) and repair and maintenance projects notwithstanding the capital outlay will not be considered under this scheme.