Capex loan disbursement to states may rise to Rs 70,000 cr by Q2 end

This is lower than Finance Minister Nirmala Sitharaman's expectation Rs 1 trillion would be released by end of September

The central government has so far cleared Rs 30,000 crore of the planned Rs 1-trillion long-term, interest-free capital expenditure (capex) loan to states, and the disbursement could rise to Rs 70,000 crore by the end of the September quarter, thus enabling states to front-load their infrastructure investments, Business Standard has learnt.

This, however, will be lower than what Union Finance Minister Nirmala Sitharaman had expected. In July, she had told this paper that the entire Rs 1 trillion could be disbursed by September-end.

“The Centre has approved Rs 30,000 crore of the capex loans, and may approve Rs 60,000-70,000 crore of loans by the end of this quarter,” a senior government official said.

The Rs 1 trillion, 50-year interest free capex loans are part of the Centre’s FY23 capex Budget of Rs 7.5 trillion. Of this amount, Rs 80,000 crore worth of loans are mostly without conditions, while Rs 20,000 crore worth is tied to PM Gatishakti-related capex investments, Pradhan Mantri Gram Sadak Yojana, urban sector reforms, and laying of fibre-optic cables under Digital India initiative.

The Rs 80,000 crore is being distributed to states as per the same formula as disbursement under the divisible tax pool following the recommendations of the 15th Finance Commission.

Thus, the bulk of the amount will go to Uttar Pradesh (17.9 per cent devolution from the divisible tax pool), Bihar (10 per cent), Madhya Pradesh (7.8 per cent), West Bengal (7.5 per cent), Maharashtra (6.3 per cent), and Rajasthan (6 per cent).

“It is clear that UP is getting the most capex loans, as these are being disbursed based on the 15th FC revenue sharing formula,” the official quoted above said.

However, there are still two conditions attached to the Rs 80,000 crore worth of loans. One is states’ adoption of the Single Nodal Account (SNA) system, and second is that they should not breach the Centre’s branding rules.

The SNA essentially means that states will have one bank account for one scheme and all the money for that scheme will flow through that account. This has meant that instead of hundreds of thousands of accounts, the Centre just has to monitor around 3,000 accounts.

Through the SNA dashboard, the Centre and states can see how much money has been disbursed, how much is with states and how much has been given to implementing agencies. The Centre saved around Rs 10,000 crore through SNA last fiscal year.

Additionally, states have to follow the official names of all centrally sponsored schemes and instructions on their branding, though correct translation into local languages is permitted. This is being done to prevent states from taking credit for centrally funded schemes. Co-branding of the Centre’s and state’s schemes is permitted, but not removing the name of the Centre’s scheme altogether.

In her 2022 Union Budget speech, Sitharaman had said that the ‘Scheme for Financial Assistance to States for Capital Investment’ was extremely well received by the states and was increased to Rs 15,000 crore from the Rs 10,000 crore initially planned.

“For 2022-23, the allocation is Rs 1 trillion to assist the states in catalysing overall investments in the economy. These 50-year interest free loans are over and above the normal borrowings allowed to the states,” she had said.

In an interview with Business Standard in July, Sitharaman had said that the entire Rs 1 trillion could be given to states in the July-September quarter itself.

“Many states are ready with their plans to spend the capex on greenfield or brownfield projects. The rules for distributing the Rs 1 trillion loans were framed by late April and the states brought their projects for evaluation in May. This Rs 1 trillion amount is yet to be picked up by the states but I'm absolutely confident that it will be picked up before the end of the second quarter itself,” she had said.

Capex Record

• Rs 30,000 cr capex loans already approved
• Another Rs 30,000-40,000 cr of approvals by quarter end
• States to receive amount based on tax devolution formula
• Uttar Pradesh, Bihar to receive the biggest capex loans
• States to ensure that branding rules are followed, single nodal account implemented