States to get capex loan of Rs 1 trn or more in FY24

The Center is likely to also offer a large investment loan to state governments in FY24. The facility will be similar to the 50-year Rs. in FY23 to help them bolster their capital spending, official sources said, adding that the loan amount could be even higher this time around.

Finance Minister Nirmala Sitharaman will discuss the contours of the loan with state finance ministers during her usual pre-budget meeting with them on November 25 here, the sources added.

The Special Capital Expenditure Support Scheme for States started in the FY21 Budget with an installation of Rs 12,000 crore as a result of the Covid-19 pandemic. While the loan amount was Rs 15,000 crore in FY22, it was increased to Rs 1 trillion in the FY23 budget.

“We don’t yet know how big the capital expenditure support program will be in FY24, whether it will be the same as FY23 or higher,” a government official said. the Union, adding that this would be a call to be taken to a higher level.

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The Centre’s budgetary capital expenditure jumped to 7.5 trillion rupees in the current fiscal year, up 27% from actual expenditure of 5.93 trillion rupees in fiscal 22 , aided by the State Loan Facility.

Despite the capex loan, state governments have slowed capital spending in the first six months of the current fiscal year to meet higher revenue spending. After the inflated borrowings in the market for FY21 and 22, they also reduced current year borrowings.

Combined investments from 19 states whose finances were reviewed by FE rose just 2% year on year to 1.67 trillion rupees in April-September of the current financial year. Growth was 80% over the period a year ago, but on a favorable basis. Keeping this in mind, the Center has already released two additional monthly fiscal decentralization installments amounting to Rs 1.17 trillion to the states so far in FY23.

The Center will likely urge states to accelerate their investments in the remainder of the current fiscal year to support economic growth.

According to the sources, coordination with states will likely focus on improving the investment climate through the implementation of initiatives such as a national master plan for “multimodal connectivity” (PM Gati Shakti), “ 111 trillion National Infrastructure Pipeline” (NIP) and efforts to generate a portion of NIP resources through the National Public Sector Asset Monetization Pipeline.

A large special investment loan was provided to states in FY23 to ensure that their investment momentum was not lost due to a lack of funds, after revenue coverage of Goods and Services Tax (GST) effective July 1, 2022.

The capex support is considered sufficient to cover any shortfall in states’ GST revenue in FY23 relative to the protected level. The support goes beyond their sanctioned borrowing limit of 4% of the state’s gross domestic product (GSDP).

According to NR Bhanumurthy, Vice Chancellor of BASE University, Bengaluru, said, “As the post-covid recovery is still in its infancy and given the recent global developments, which indicate a prolonged downturn, states need to be supported. States are in a better position to spend on new investment projects.I think the Center and the States should continue to focus on their investment plans until the private sector is part of the recovery process.

Although GST compensation has ended, states are also expected to see a shortfall in GST revenue from the desired growth of 14% (based on which compensation was granted for five years) in FY24 as well.

“We will seek to continue the (grant-like) investment program given the resource scarcity that the states are facing,” a senior state government official said.

The Rs 1 trillion program for FY23 was available to all states subject to them adhering to the “no rebranding rule” regarding centrally sponsored programs and sharing all program expenses with the Center to avoid parking funds. The program has been successful with almost all states now on board to comply with these standards and has freed up around Rs 40,000 crore idle with states for spending on various programs. It also led to a corresponding saving for the Center on the FY23 budget allocation, which it could use for other pressing needs such as additional grant spending.

The Center has disbursed about Rs 32,500 crore under the interest-free investment loans to state governments so far this year, against the sanctioned amount of Rs 65,000 crore. At least Rs 90,000 crore or 90% of the funds would be utilized by March even though some states are not taking full advantage of the facility.

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