The Centre’s liberal interest-free loan disbursement to state governments for asset-creating projects has reached Rs 0.5 trillion or 54% of the sanctioned amount so far in the current financial year, supporting the strategy to frontload capex to support economic growth.
Of the Rs 1.3 trillion 50-year capex loan facility for states in FY24, the Center has already issued sanction letters totalling Rs 0.92 trillion.
In the first half of the previous financial year, the Centre had sanctioned Rs 0.51 trillion out of the Rs 1 trillion facility but no disbursements had taken place.
Besides removal restrictions on capex on central ministries and departments, the Centre’s faster release of capex loans to states to accelerate development spending is also aiding overall public capex, which in turn has begun crowding in private capex.
Of the total outlay of Rs 1.3 trillion for loans to states, the tied component is Rs 0.3 trillion.
By September, the Centre’s overall sanction is likely to reach around Rs 1 trillion and disbursement of around Rs 0.65 trillion, sources said. This would help the Centre spend over 60% of the Rs 10 trillion capex budget for the current fiscal in the first half itself compared with 45.6% of the relevant annual target in the year-ago period.
Sensing paucity of time due to a clutch of state elections by end-2023, the Centre has relaxed the norms to release two-thirds of the untied loans amounting to Rs 0.67 trillion in the first instalment itself instead of the earlier plan to release one-third or Rs 0.33 trillion in the first instalment.
The last instalment of Rs 0.33 trillion under the untied part would be disbursed on utilisation of 75% of the amount released in the first and on meeting 45% of the total state budget target fixed for capex by each state in FY24 in April-September.
The states which have already received sanction and getting loan disbursement include Uttar Pradesh, Karnataka, Madhya Pradesh, Odisha, Rajasthan, Tamil Nadu, Telangana, West Bengal, Bihar, Chhattisgarh, Goa, Gujarat, Haryana and Himachal Pradesh.
Tied capex loan sanctions and releases linked to reforms or specific projects will take some time.
Last year, when this special capex outlay to states was scaled up by more than six times to Rs 1 trillion, the release of funds started as late as October, owing to the fiduciary conditions and time taken by states to comply with them. As a result, the capex loans released stood at about Rs 0.81 trillion in FY23.
The capex disbursements in FY24 are being frontloaded and may cross Rs 1 trillion, but may they fall short of the Rs 1.3 trillion target due to conditionalities that may not be fully met by states in time.