The Centre has asked state governments to give details of the projects that are ready to be funded under the Rs 1 trillion special capex loan to the states, a senior official said. The central government is keen that the entire loan funds are invested in asset-creating projects within the current financial year, giving a fillip to capital formation in the economy.
The official said around 80% of the 50-year soft loan to states would be released solely based on the viability of the projects while the release of the balance amount would be contingent on the states undertaking specified reforms aimed at improving the productivity of the economy, in some critical areas. The Centre issued the guidelines in this regard to states last week.
“A part of the tied funds of Rs 20,000 crore will be earmarked for infrastructure connectivity projects such as laying of optical fibre cables for last-mile connectivity under BaratNet in rural areas and road projects under the GatiShakti master plan,” the official said. Some funds would also be earmarked for urban sector reforms and town planning schemes.
In the Budget for FY23, finance minister Nirmala Sitharaman announced Rs 1-trillion support to states to ensure that capex momentum is not lost due to a paucity of funds, after discontinuation of revenue cover for the goods and services tax (GST) effective July 1, 2022. The capex support is seen to be sufficient to cover any shortfall in states’ GST revenues in FY23 from the protected level. The support will be over and above their borrowing limit of 4% of gross state domestic product (GSDP).
As for the untied funds of about Rs 80,000 crore, the allocations among states will be in proportion to their share of central taxes. However, the release of tied funds will be based on milestones achieved by each state and not based on the Finance Commission formula, the official added.
“We have invited project-based proposals from states. As and when they come, we will clear them,” the official said. Project readiness is important as the funds will be transferred against individual projects, not as lumpsum amounts.
Out of `15,000 crore earmarked for 50-year interest-free special assistance to states for FY22, the Centre had initially stipulated for a state to be eligible for a third of its share, it has to monetise/recycle infrastructure assets and divest its stakes in-state public sector enterprises. But these found no takers as states pointed out that they have limited scope in asset monetisation and disinvestment. The Centre later removed these conditions and released the funds for projects identified by the states in FY22.