The Centre will likely relax norms to help states utilise the last instalment of Rs 33,000 crore from the Rs 1 trillion untied interest-free capex loan facility if they meet the fiduciary condition of achieving 45% of their annual capex target by the third quarter instead of the second quarter of FY24.
The states, which fail to meet the likely revised timeframe would lose one-third of their quota from the untied capex loans. Of the total outlay of Rs 1.3 trillion for 50-year loans to states in FY24, the tied component is Rs 30,000 crore.
Sensing paucity of time due to a clutch of state elections by end-2023, the Centre had earlier relaxed the norms to release two-thirds of the untied loans amounting to Rs 67,000 crore in the first instalment itself instead of the earlier plan to release one-third or Rs 33,000 crore in the first instalment.
The last instalment of Rs 33,000 crore, 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.
Usually, states meet 25-30% of their capex in H1 of a year as monsoon slows down spending in Q2.
Also, some states back-end their capex to give priority to committed revenue spending including salary, pension and interest costs. So, states reach around 45% of their annual capex target by November of the year, a state government official said.
“So, relaxations in the time period with regard to meeting the 45% capex goal would be of immense help as no state would like to lose funds for not meeting the target by September,” the state government official said.
As part of the drive to frontload capex to support economic growth revival, the Centre is keen that states use the entire untied Rs 1 trillion before December to avoid disruptions due to a clutch of state elections, including in Madhya Pradesh and Rajasthan by the end of this year.
While the Centre would release the last instalment of untied funds if states achieve 45% of their annual capex target by the third quarter, the amount would be recovered from them in FY25 if they fail to meet the annual investment target by March 2024.
Accordingly, the states in aggregate would have to invest Rs 6.12 trillion in FY24, excluding capex support given by the Centre and their debt repayments.
As of September 12 of this year, the Centre’s liberal interest-free loan disbursement to state governments for asset-creating projects has reached Rs 50,000 crore or 54% of the sanctioned amount of Rs 92,000 crore so far in the current financial year.
In the first half of the previous financial year, the Centre had sanctioned Rs 51,000 crore out of the Rs 1 trillion facility but no disbursements had taken place.