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Explained: The logic behind long-term capex loans for states

The Centre has been implementing various schemes for a financially secure, viable and sustainable power sector. (Mint)
The Centre has been implementing various schemes for a financially secure, viable and sustainable power sector. (Mint)

Summary

Mint examines the long-term strategy behind this capital expenditure plan

Union budget 2023-24 has proposed to continue with the 50-year interest-free loan to state governments that aid infrastructure investment. Mint examines the long-term strategy behind this capital expenditure plan.

What are the terms for extending this loan?

The 50-year loan is intended for capex in FY24. Most of it would be at the discretion of states, while parts of the expenditure will also be linked to, or allocated for, scrapping old government vehicles; urban planning reforms; financing reforms in urban local bodies to make them creditworthy for municipal bonds; housing for police personnel or as part of police stations and constructing unity malls—these malls would focus on the sale of handicrafts, ‘one district, one product’ items, and GI products. Besides, a part has to be directed at creating libraries as well as digital infrastructure, among others.

How does it help in minimizing pollution?

Scrapping old government vehicles will help reduce polluting and fuel-guzzling vehicles, bringing down vehicular pollution. It will reduce the number of old vehicles which have high levels of emission and noise. An added benefit—recycling of waste metal. Replacing old vehicles with new ones would help in economizing the use of petroleum products and reduction in oil imports due to greater fuel efficiency of newer vehicles. This measure will also help in carrying forward the effective implementation of the central government’s old vehicle scrappage policy with the cooperation of states.

How does it help improve civic amenities?

A weak financial position weakens local bodies’ capacity to provide good amenities. Mumbai, Bengaluru, Chennai and Hyderabad routinely face havoc during monsoons. The price of the ensuing mayhem, a result of weak civic amenities, is paid by the public. Poor amenities also cripple business and create hurdles when it comes to attracting investment.

How will it strengthen infra facilities?

50 additional airports, heliports, aerodromes, and advanced landing grounds are on the government’s agenda. The government has also announced an urban infra boost for Tier 2 and 3 cities. It will set up an Urban Infrastructure Development Fund of 10,000 crore per year to be used by public agencies to build infrastructure in these cities. States and cities would be encouraged to undertake reforms in urban planning, and make cities sustainable. The support is linked to states’ commitment to infrastructure.

What is the strategy on fiscal discipline?

Fiscal deficit of states would be restricted to 3.5% of gross state domestic product, of which 0.5% will be tied to power reforms. The Centre has been implementing various schemes for a financially secure, viable and sustainable power sector. In this year’s budget, too, it has attempted to make states more disciplined in reducing losses in the power sector. Making it obligatory on states to go for power reforms is a major step forward for all the stakeholders.

Jagadish Shettigar and Pooja Misra are faculty members at BIMTECH.

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