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The Centre has proposed to fully fund certain road projects under the PM Grameen Sadak Yojana -- rather than meeting the usual 60% of cost -- in a move aimed at pushing rural jobs.

This is part of the additional 1 trillion capital allocation announced for states in the Union Budget. States will also be given the option of counterpart funding, where they could substitute their 40% share with Central funding to “kickstart PMGSY", finance secretary TV Somanathan said in an interview.

The remaining portion of 1 trillion will be given to states as a 50-year loan in line with the capital assistance to states provided last year, and this will be tied to urban reforms, people familiar with the matter said. The ministry of rural development will identify the PMGSY roads that will be eligible for the scheme. “We want productive jobs and not lifeline kind of jobs. So PMGSY will kick-start it in certain segments that the ministry of rural development will identify," said Somanathan.

These are centrally sponsored schemes (CSS), where a certain portion of funding requirement is borne by the Centre and the remainder by states. Detailed guidelines on this will be issued by March-end..

Somanathan said the counterpart funding will not affect or impact the allocation of any centrally sponsored scheme. The capital outlay is over and above the CSS allocation, which has seen a significant increase, he said.

The allocation under PMGSY has been increased by 35% to 19,000 crore for FY23 from 14,000 crore revised estimates for FY22.

The rest of the 1 trillion it will be tied to urban reforms, including digitalisation, digital payments, optical fibre network and Gati Shakti. With reform linkages in the 1 trillion outlay, the capital assistance scheme is expected to be on the similar lines as last year where a minimum allocation was made to the north eastern states and the rest was allocated as per the Finance Commission’s devolution formula. “We will continue that this year," said a government official on condition of anonymity.

“The step taken by the Centre to fully fund the PMGSY is an aggressive move to develop rural roads which will lead to creation of jobs," said Madan Sabnavis, chief economist, Bank of Baroda. In case states use their normal contribution of 40% of funds on the same projects, there will be acceleration of the same, he added. Sabnavis said the full-financing of such a scheme was clearly targeted to create jobs as road projects have a very high labour cost. “The net increment of jobs will depend on the schemes where the Centre would otherwise have directed funds. It can be assumed that this will be significant given that the Centre has stated that it is channelling funds in job-creating schemes," he said.

Aditi Nayar, chief economist, ICRA said different states may have varying capex priorities and it remains to be seen if that can be accommodated within the design of this loan. “That will impact both the overall offtake, and the speed with which the spending takes off," she said.

Finance minister Nirmala Sitharaman announced an increase in outlay for the “Scheme for Financial Assistance to States for Capital Investment" from 15,000 crore this fiscal to 1 trillion for FY23, over and above the normal borrowing allowed for the states. She had pointed out that it will be used for PM Gati Shakti-related and other productive capital investment for states, components for supplemental funding for priority segments of PM Gram Sadak Yojana, digitisation of the economy, and reforms related to building bylaws, town planning schemes, transit-oriented development, and transferable development rights.

ABOUT THE AUTHOR

Dilasha Seth

" Dilasha Seth is a journalist reporting on macroeconomic policy for the last 11 years. She writes extensively on issues including international trade, macroeconomic data, fiscal policy, and taxation. At Mint, she reports on trade deals that India is signing besides key policy decisions of the Ministry of Finance. She closely tracked and covered the transition to the goods and services tax (GST) regime in 2017 and also writes on direct tax-related issues. In the past, she has worked with Business Standard and The Economic Times. She is based in Bangalore."
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