States Expected to Miss 20% of Capex Loans Allocation in FY24, Reveals Government Official

Loans

The anticipated shortfall in utilizing capex loans by states could reach up to 20% in the fiscal year 2024, according to a high-ranking government official. This underutilization is primarily attributed to certain states not meeting the stipulated conditions related to reforms.

Capex Loans Allocation and Utilization in FY23

In the preceding fiscal year, the Union government earmarked a substantial sum of Rs 1 lakh crore as long-term, interest-free loans specifically designed for state utilization. Out of this allocation, an amount of Rs 81,195 crore was successfully utilized by the states.

Projections for FY24 and Insight from a Government Official

The allocation of interest-free loans, totaling Rs 1.3 lakh crore, is directed towards fulfilling states’ capital expenditure requirements. However, a senior government official indicates that this allocation is likely to remain underutilized by approximately 20% in the upcoming fiscal year, FY24.

When questioned about the potential utilization, the official, who requested anonymity, responded, “I anticipate a similar utilization rate as observed in the previous year.” Drawing a parallel to FY23, where Rs 1 lakh crore of the allocated loans were made available, and Rs 81,195 crore was used, the sentiment is that this pattern might persist.

Critical Role of Interest-Free Loans and Possible Ramifications

The central government offers these interest-free loans with a repayment window of 50 years to states through the Scheme for Special Assistance for Capital Investment. These loans hold a pivotal role in achieving the government’s ambitious target of Rs 10 lakh crore for capital expenditure in FY24. Consequently, any underutilization by states may contribute to a deficit in the Centre’s projected capital expenditure.

Reasons Behind Underutilization

The underutilization of these capex loans is attributed to certain states not meeting the prescribed reform-related criteria. Out of the allocated Rs 1.3 lakh crore, Rs 1 lakh crore is distributed among states in proportion to their respective share of central taxes and duties, as per the recommendations of the 15th Finance Commission. The remaining portion of the allocation is contingent upon the successful implementation of reforms, including the phasing out of old state government vehicles and ambulances, the release of liabilities related to aging vehicles, extending tax incentives to individuals for discarding old vehicles, establishment of automated vehicle testing facilities, reforms in urban planning, enhancing the creditworthiness of urban local bodies, and augmenting their financial stability.

Progress Update and Allocated Loans in the Current Fiscal Year

The current fiscal year has witnessed the sanctioning of Rs 84,884 crore worth of long-term, interest-free loans for capital projects in 21 states. Pankaj Chaudhary, the Minister of State for Finance, highlighted this fact while addressing the Lok Sabha on July 31. This approved amount accounts for 65% of the Centre’s estimated budget of Rs 1.3 lakh crore.

However, the actual disbursement of funds lags behind, with only Rs 29,518 crore having been released to date, as per Chaudhary’s statement. Among the 12 states that have received capex loans thus far are Assam, Bihar, Goa, Haryana, Himachal Pradesh, Madhya Pradesh, Odisha, Rajasthan, Sikkim, Tamil Nadu, Telangana, and West Bengal.

Diverse Investment in Vital Sectors

The Scheme for Special Assistance for Capital Investment has greenlit projects spanning various sectors, including health, education, irrigation, water supply, power, roads, bridges, and railways. Additionally, this scheme extends funding for the Jal Jeevan Mission and Pradhan Mantri Gram Sadak Yojana, reinforcing the progress of projects in these pivotal sectors.

In conclusion, the projection of a 20% underutilization of capex loans by states in FY24 underscores the importance of efficient planning, reform implementation, and financial management. As these loans play a substantial role in realizing the government’s ambitious capital expenditure target, active collaboration between the central and state administrations is crucial for achieving desired outcomes.

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