NEW DELHI: The Centre will continue to turbocharge public capital expenditure by extending liberal capex loans to state governments for the sixth year in a row in FY26. It may either keep the outlay for the 50-year interest-free loans for the next fiscal at Rs 1.5 lakh crore, the same as the current year in absolute terms, or announce a 10% hike to Rs 1.65 lakh crore, sources said.
In the wake of Covid-induced revenue constraints, the Centre had, in 2020-21, launched the “scheme for special assistance to states for capital expenditure”. With the scheme gaining traction among states, the Centre made an outlay of Rs 12,000 crore for FY21, allocated a comparable amount in FY22, and raised the outlay substantially to Rs 1 lakh crore in FY23, and further to Rs 1.5 lakh crore each in FY24 and FY25.
The move to maintain the loan amounts for the next fiscal at comparable level is in the wake of a moderation in public capex in the current financial year, partly caused by general elections at the start of the year, but also due to capacity constraints faced by various governments when it comes to implementing projects.
Gross fixed capital formation, a close proxy of investments, is seen to grow 6.4% in 2024-25, compared with 9% in 2023-24, as per the first advance estimates of the gross domestic product released recently.
To ensure that states don’t scale down their own capex, the Centre has linked a substantial portion of the outlays to reforms and specific projects as part of the vision to make India a developed nation.
The Centre’s capex has grown on an average of 30% between FY22 and FY24 as it adopted a capex-led growth strategy, taking such productive spending to 3% of GDP for the first time in FY24. It had set a target of Rs 11.11 lakh crore, including Rs 1.5 lakh crore for states in FY25, a 17% increase over Rs 9.5 lakh crore achieved in FY24.
The Centre has been continuing with the scheme as it promotes decentralised development of the country which may not be achieved fully through railways or highways, the major vehicles of its investment. The railways and NHAI also have capacity constraints.
In the pre-Budget meeting with Union finance minister Nirmala Sitharaman last month, state finance ministers demanded an increase in the allocation for capex loans and more flexibility in the scheme.
The Centre has relaxed a clutch of norms regarding the release of interest-free capex loans to the state governments to ensure that the entire sum of Rs 1.5 lakh crore earmarked for 2024-25 is fully utilised during the year, and help arrest a decline in public capex.
The move aims to minimise a likely shortfall in actual budgetary capital expenditure from the budgeted level of Rs 11.11 lakh crore. By November end, Rs 5.13 lakh crore of the capex budget for the year was spent, which was down 12.3% on year.
Sitharaman had indicated in the past that the grant-like loans could ultimately be converted into grants in future.
Source: The Financial Express
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