Centre sets out rules on disbursing Rs 1 trillion capex funds to states

The Centre will release Rs 1-trillion interest-free capex loans, as announced in this year’s Budget, to the states under seven heads with conditions such as facilitating Gati Shakti, funding the PM Gram Sadak Yojana, incentivising digitisation, laying the optical fibre cable network, urban reforms, disinvestment, and monetisation.

While Rs 80,000 crore will be allocated to the states in proportion with their shares in central taxes and duties (in accordance with the 15th Finance Commission recommendations) for projects chosen by them, the remaining Rs 20,000 crore will be for specific purposes. For example, of the Rs 80,000 crore, Uttar Pradesh, with a 17.9 per cent share in the devolution of taxes, will receive Rs 14,351 crore and Mizoram with 0.5 per cent share will get Rs 400 crore for sanctioned projects.

In the guidelines, reviewed by Business Standard, issued to the states in April, the finance ministry said the “redesigned and expanded” 50-year interest-free loan to the states had to follow the official names of all centrally sponsored schemes and instructions on their branding even though correct translation into local languages was permitted. This is done to prevent states from taking credit for the centrally funded schemes. 

Funds provided to the states under the scheme will be used for new and ongoing capital projects as well as for settling pending bills in them.

“Project with capital outlay of less than Rs 5 crore (Rs 2 crore for North-eastern states) and repair and maintenance projects irrespective of capital outlay will not be considered under the scheme. The government of India reserves the right to reject any project which, in its opinion, does not have sufficient economic merit in terms of short-term stimulus combined with long-term benefits to the economy,” the finance ministry said.

Union Finance Minister Nirmala Sitharaman in an interview to Business Standard last week said the states had started submitting projects for the scheme and the full amounts would be disbursed by the end of September.

In view of a higher multiplier effect of capital expenditure on growth and to provide much-needed resources to the states in the wake of the pandemic, a “(scheme) for special assistance to states for capital expenditure” was launched in FY21 with Rs 12,000 crore.

In FY22, the scheme continued with an allocation of Rs 15,000 crore. The funds were disbursed under three heads in that year: For the Northeast and hilly states; for other states; and for incentivising states to divest stakes in state public sector enterprises and monetising assets.

The amounts will be released by the states to implementing agencies within 10 working days. “Delay beyond this period will make the state liable to pay interest to the Government of India on the amount released as per the weighted rate of interest on open market borrowings (i.e. the 10 year G-Sec) for the previous year,” the finance ministry said.

Under Part 1 of the scheme, the funds for approved projects will be released by the Department of Expenditure in two instalments. While the first instalment of 50 per cent of the amount will be released after the list of projects submitted by the state is approved, the remaining 50 per cent will be given as second instalment after the utilisation certificate is submitted.

“All amounts allocated under Part 1 to Part 7 of the scheme shall be spent on eligible expenditure before 31.03.2023. For this purpose, release of funds to intermediate agencies without actual payments to the final recipient (parking of funds) will not be treated as expenditure,” the guidelines said.