Capex loan to states may be 20% lower than Budget estimates

New Delhi: The government expects disbursement of interest-free, long-term loans to states for capital expenditure to be 15-20% lower than the budget estimate for fiscal 2025, because general elections had dragged down spending in the first half of the year.

The government in the July budget had sanctioned ₹1.5 lakh crore under the Scheme for Special Assistance to States for Capital Expenditure. However, in the first half of the fiscal year, projects worth only ₹50,069 crore were approved. It may now lower the allocation to ₹1.30-1.35 lakh crore in the revised estimate, a senior official told ET.

“Because of general elections in the first half, states may not be able to utilise the complete amount and we see only 80-85% of the utilisation of funds,” the official said.

The government is nudging states to increase their spending in the second half, but it may not match up the pace required to fully utilise the budgeted amount.

Pre-budget meetings to finalise revised estimates for FY25 are ongoing and will conclude by November 11. Under the scheme, the Centre extends 50-year loans to states to boost their durable assets creation. States are required to undertake stipulated reform measures to obtain a part of the capex loans that are conditional in nature. The Centre had increased the budgetary allocation under the scheme to ₹1.5 lakh crore for this fiscal year from ₹1.05 lakh crore last fiscal year.

Out of this, ₹55,000 crore is unconditional loan, while disbursement of the remaining ₹95,000 crore is tied to different conditions including industrial growth, land reforms and capex growth by states.Out of ₹95,000 crore conditional loan, the official said ₹25,000 crore is linked to capex achievement by states.States will get 50% of the corresponding share if they have reported capex growth of 10% or more in FY24. For the remaining 50%, they must achieve 10% capex growth this fiscal year. State capex had been slow in the first half of this year.

Earlier this month, finance minister Nirmala Sitharaman asked expenditure secretary Manoj Govil to coordinate with states to expedite the submission and approval of project proposals and ensure that they undertake capital investments in a timely and efficient manner.

The Centre had initially allocated ₹1.30 crore for FY24, but it was slashed in the interim budget by 19% to ₹1.05 lakh crore.

This was because states like Andhra Pradesh, Kerala and Punjab did not receive any funds in FY24 as they did not fulfil the conditions or failed to fully spend the amounts allocated to them in the previous fiscal year under the scheme.