Plans to help states fully utilise the capital investment facility
The Union finance ministry has called a virtual meeting of state finance secretaries on Wednesday to discuss the Rs 1.3 trillion special assistance to states for capital investment in the current fiscal and sensitise them about meeting various conditionalities in order to be able to fully utilise the facility.
The Centre will start releasing the interest-free capex loans to the state governments as early as possible to ensure the resultant investments by them are evenly spread out during the year to produce a large growth multiplier.
Last year, when this special capex outlay was scaled up by more than six times to Rs 1 trillion, the release of funds started as late as October, owing to the fiduciary conditions and time taken by states to comply with them. As a consequence, the actual disbursement was Rs 81,200 crore, 18.8% lower than FY23 budget estimate.
The outlay for the current year is Rs 1.3 trillion, with an untied component of Rs 1 trillion.
“The Union finance ministry wants the states to send project proposals to be funded through the Centre’s capex facility at the earliest. The states want the early release of guidelines on availing the Rs 30,000 crore tied capex funds for specific projects/schemes,” a senior official aware of the meeting told FE.
While tied funds of Rs30,000 crore would be released to states on a first-come-first-serve basis, the untied Rs 1 trillion component would be released in three instalments in FY24 compared to two instalments in FY23.
There are some concerns with regard to states’ ability to accelerate capex from their own resources (other than central assistance) as a third of untied capex support in the current fiscal hinges on achieving their individual capex targets for the year.
The first instalment of 33.3% (totalling Rs 33,300 crore for all states) would be released to each state government on meeting three fiduciary conditions: adhering to branding norms for central schemes, sharing of scheme-wise spending data, and proof of deposit of the Centre’s share of the interest earned in Single Nodal Agency (SNA) account for each scheme.
The second instalment of untied funds would be released on utilisation of at least 75% of the first. The third instalment under this part would be disbursed on utilisation of 75% of the amount released in the first two and on meeting 45% of the total target fixed for capex by each state in FY24.
Accordingly, the states in aggregate would have to invest Rs 6.12 trillion in FY24, excluding capex support given by the Centre and their debt repayments. While the Centre would release the third instalment of untied funds if states achieve 45% of their annual capex target in H1FY24, the amount would be recovered from them in FY25 if they fail to meet the annual investment target by March 2024.
Half of the ‘tied’ capex support of Rs 30,000 crore for reforms and specific purposes has been earmarked for urban planning reforms for efficient use of land resources, adequate resources for urban infrastructure, transit-oriented development, and enhanced availability and affordability of urban land.
Indicating the government’s focus on urban bodies’ capacity building, another Rs 5,000 crore is allocated for financing reforms in urban local bodies to make them creditworthy for municipal bonds and the issue of municipal bonds.
An incentive of Rs 5,000 crore would be given to states to set up Unity Malls in their capital cities to promote national integration, ‘Make in India’ and ‘one district, one product’.
Among others, an amount of Rs 3,000 crore is earmarked as incentive to states for the scrapping of government vehicles and ambulances. Another Rs 2,000 crore is earmarked for increasing housing facilities for police personnel and their families in urban areas.
Source:financialexpress.com