In a significant move to bolster the creation of fixed assets in the economy, the Indian government has sanctioned Rs 1.1 trillion in the current financial year as interest-free capex loans to states, marking a substantial step towards accelerating economic growth.
The current disbursements represent a remarkable 85% of the budgeted amount of Rs 1.3 trillion allocated for FY24 under this program, which aims to fast-track the development of vital assets across the country.
Notably, disbursements in the current financial year have exceeded expectations, with over double the amount disbursed to states compared to the corresponding period in FY23 under the Scheme for Special Assistance to States for Capital Investment. This surge in funds disbursed demonstrates the government's commitment to supporting economic development.
Last year, disbursements were delayed due to states facing challenges in meeting fiduciary conditions related to compliance with branding norms of centrally sponsored schemes and the sharing of scheme-specific spending data for real-time monitoring.
Front-loading capex loans to states in FY24 has significantly contributed to the government's efforts to achieve nearly half of its annual capex target of Rs 10 trillion in the first half of the financial year. State governments have also responded positively, with a 56% increase in capital expenditure compared to a modest 2% rise in the previous year. This growth was largely driven by capex loans from the central government. Excluding loans from the Centre, the 18 major states reviewed by FE reported a robust 26% increase in capital expenditure in H1FY24 compared to the same period the previous year.
Out of the total capex loan allocation of Rs 1.3 trillion for FY24, Rs 0.3 trillion is earmarked as the tied component. To expedite the process and accommodate state election schedules, the Centre has relaxed norms, allowing for the release of two-thirds of the untied loans, amounting to Rs 0.67 trillion, in the first installment. The second installment, totaling Rs 0.33 trillion, will be released based on states' progress in achieving 45% of their annual capex target (excluding central loans) by October and submitting utilization certificates for 75% of the funds released in the first installment.
While capex disbursements in FY24 have been frontloaded and are expected to surpass Rs 1 trillion, they may still fall short of the Rs 1.3 trillion target due to conditionalities that some states may not fully meet. In FY23, states provided Rs 81,200 crore, falling short of the budget provision of Rs 1 trillion, as some states faced challenges in fulfilling the required conditions.
