Centre to tighten reform criteria for states seeking 50-year interest-free capex loans: Ajay Seth

Ajay Seth, secretary, economic affairs. (REUTERS)
Ajay Seth, secretary, economic affairs. (REUTERS)

Summary

The DEA secretary emphasized the need for tangible legislative changes and highlighted the importance of easing business regulations to stimulate economic recovery.

New Delhi: The Union government plans to raise the bar for benchmark reforms for states seeking access to its 50-year interest-free capital expenditure (capex) loans, aiming to drive deregulation and improve ease of doing business—a key focus of the latest budget – said Ajay Seth, secretary at the Department of Economic Affairs (DEA).

"As we gain more experience, the quality of reforms continues to improve, and the expectations keep rising," Seth told Mint on Sunday. “It's no longer enough to simply announce a policy—that's not sufficient. We are now looking at real legislative changes and tangible impact on the ground."

The reforms states had to introduce in FY24 to avail of the central loans included improvements in the housing sector, providing incentives for scrapping old government vehicles and ambulances, reforms in urban planning and urban finance, increasing housing stock for police personnel, and setting up libraries with digital infrastructure at panchayat and ward levels for children and young adults.

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Seth said that while some reforms and deregulation processes may take a year to implement, others could take longer, but the goal remains to drive productivity through incentive-based changes.

"Even small regulatory tweaks can make a big difference. For instance, something as basic as reducing the frequency of mandatory inspections or license renewals can ease the burden on businesses," Seth said.

“A major city, for example, once required every shop and MSME to renew its trade license annually. That was later extended to three years."

Batting for domestic growth

The latest economic survey says India must accelerate domestic growth through deregulation and private investment as globalization slows.

The pre-budget report also emphasized that to achieve its goal of becoming a developed nation by 2047, India must sustain an 8% growth rate for at least a decade, even as global uncertainties raise concerns about an economic slowdown.

These interest-free loans have played a big role in stimulating capital spending by states and catalyzing the economy after the pandemic. States in India make up 20–25% of the overall infrastructure spending, a focus area of the government.

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Meanwhile, Seth said that the investment friendliness index for states, announced in the latest budget, is expected to be launched during the ongoing calendar year (2025).

In the spirit of competitive cooperative federalism, if one state is outperforming another, the question remains whether other states can match the progress, do things differently, adopt best practices and implement more effectively, he added.

Not a great idea

Seth also said that the use of foreign exchange policy for export promotion is not a great idea.

"It is about making our products more competitive, meaning making our resource utilization more productive, improving our productivity, and making better quality," he said.

On 1 February, US President Donald Trump slapped tariffs on imports from Canada, Mexico and China, raising concerns about similar actions on India, which is one of the largest trading partners of the North American country.

The US is one of the few countries that India has a trade surplus with.

Also read |  Personal income tax buoyancy helped to offer relief: Finance secretary

During FY24, India's trade surplus with the US stood at around $35 billion, while its overall trade deficit stood at $189 billion.

To be sure, the Indian Rupee has breached the all-time low recently against the US Dollar.

"Policy level intervention doesn't get taken just by an event of a day or even of few weeks but over a longer term," Seth said.

"However, it is about making our products more competitive, meaning that making our resource utilization more productive, improving our productivity, and making better quality," he added. 

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