Nearly 85% of capital expenditure loans to states released in FY24: Finance ministry

New Delhi: The Union government released about ₹1.10 trillion of the ₹1.3 trillion allocated to states in 2023-24 as interest-free loans towards developing infrastructure and specific reforms, with Uttar Pradesh, Madhya Pradesh, and Bihar cornering a large portion of the funds.

While 26 states availed funds from the Scheme for Special Assistance to States for Capital Expenditure in FY24, Kerala and Punjab didn’t receive any.

Uttar Pradesh received the most funds, ₹19,215.08 crore, while Madhya Pradesh secured ₹12,636.21 crore, Bihar ₹8,814.80 crore, Rajasthan ₹8,513.42 crore, Assam ₹5,804.43 crore, Tamil Nadu ₹5,326.42 crore, and West Bengal ₹5,015.58 crore, finance ministry data show.

Earlier this week, the central government raised the allocation for the 50-year interest-free loans in the Union budget for 2024-25 to ₹1.5 trillion, up from ₹1.3 trillion targeted in the interim budget.

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States can access about ₹55,000 crore of the ₹1.5 trillion without having to meet any conditions. To claim the remaining funds, states will have to carry out reforms and other specific measures such as building or promoting iconic tourism sites.

Reforms for loans

Conditions include reforms related to the housing sector, urban planning and urban finance, incentives for scrapping old government vehicles and ambulances, increasing housing for police personnel, and establishing libraries with digital infrastructure at panchayat and ward levels for children and young adults.

States also have to implement reforms linked to land records in rural and urban areas, including digitisation of land records, easing of planning rules for industrial lands, improvements in urban land records, and utilising digital technology in agriculture.

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The interest-free capex loans to states will fund targeted investments across infrastructural segments,” a senior government official recently said. “This will further drive up infrastructure spending and overall growth.”

Between 1 April and 17 July, the Union government released ₹15,119.6 crore to the 11 states under the scheme. 

Catalysing the economy

States account for 20-25% of India’s overall infrastructure spending, a key focus area of the Union government. The easy loans have helped state administrations stimulate capital spending and catalyse the economy.

Launched in 2020-21, the scheme helped states with an allocation of  ₹12,000 crore to foster economic growth after the pandemic.

The Centre stepped up allocation under the scheme to ₹15,000 crore in FY22 and dramatically scaled it up to ₹1.07 trillion in FY23, with ₹27,000 crore linked to specific reforms by states.

In FY24, while ₹1.3 trillion was allocated for the scheme, about  ₹30,000 crore of that allocation was marked as outcome-based. The remaining  ₹1 trillion had the same condition as for FY25—states have to ensure the loan supplements their capital expenditure and not substitutes it.

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