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

The Centre is likely to offer a large capex loan to the state governments in FY24 as well. The facility will be similar to the 50-years Rs 1 trillion soft loan extended to them in FY23 to help them bolster their capital expenditure, official sources said, adding that the loan size could be even higher this time around.

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

The special capex support scheme for states began in Budget FY21 with a Rs 12,000 crore facility in the wake of the Covid-19 pandemic. While the loan size was Rs 15,000 crore in FY22, it was enlarged to Rs 1 trillion in Budget FY23.

“We don’t know as yet what will be the size of the capex support scheme in FY24, whether it will be same as in FY23 or higher,” a Union government official said, adding that it will be a call to be taken at a higher level.

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The Centre’s budgeteary capex jumped to of Rs 7.5 trillion in the current financial year, up 27% from the actual spending of Rs 5.93 trillion in FY22, aided by the loan facility to the states.

Despite the capex loan, the state governments have slowed down their capital expenditure in the first six months of the current fiscal to accommodate higher revenue spending. After the bloated market borrowings for FY21 and FY22, they have also curbed borrowings in the current year.

The combined capex of 19 states whose finances were reviewed by FE was up just 2% on year at Rs 1.67 trillion in April-September of the current fiscal. The growth was 80% in the year-ago period albeit on a favourable base. Keeping this in mind, the Centre has already released two extra monthly installments of tax devolution amounting to Rs 1.17 trillion to the states so far in FY23.

The Centre will likely urge the states to accelerate their capex in the remainder of the current fiscal to support economic growth.

According to the sources, the focus of the coordination with states will likely be on improving investment climate through the implementation of initiatives such as a national master plan for ‘multi-modal connectivity (PM Gati Shakti), `111 trillion National Infrastructure Pipeline (NIP) and the efforts to generate a portion of resources for NIP through the National Monetisation Pipeline of public sector assets.

A large special capex loan was extended to states in FY23 to ensure that their capex momentum is not lost due to a paucity of funds, after the 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 is over and above their sanctioned borrowing limit of 4% of the gross state domestic product (GSDP).

According to N R Bhanumurthy, vice-chancellor of Bengaluru’s BASE University, said: “As the post-covid recovery is still at nascent stage and given the recent global developments, which point to a prolonged slowdown, the states need to be supported. States are better-placed to spend on new capex projects. I feel both the Centre and states should continue to focus on their capex plans until private sector becomes part of the recovery process.”

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

“We will seek continuation of the (grant-like) capex scheme given the resources crunch states are facing,” a senior state government official said.

The Rs 1 trillion scheme for FY23 was available for all states subject to them meeting the “no-rebranding rule” regarding the centrally sponsored schemes and sharing of all scheme-related expenditure to the Centre to avoid parking of funds. The scheme has been a success with almost all states now on board to comply with these norms and has freed up about Rs 40,000 crore lying idle with states for the spending on various schemes. This has also led to a corresponding saving to the Centre from FY23 budget allocation, which it could utilise for other pressing requirements such as meeting additional spending on subsidies.

The Centre has disbursed about Rs 32,500 crore under the interest-free capex loans to the state governments so far this year, as against the sanctioned amount of Rs 65,000 crore. At least Rs 90,000 crore or 90% of the funds would be utilised by March even if some of the states fail to avail of the facility fully.