Capital expenditure aid to states may be regular Budget feature

The amount is part of the Centre's Rs7.5 capex outlay for the next year.

The Centre is likely to make capital expenditure (capex) support to states a regular feature in future Budgets, Business Standard has learnt. This is being done as a lot of the public infrastructure – like mass transportation, rural roads, state highways – is being built by states, and that many of them will require multi-year support to expand their capacities.

Under the ‘Scheme for Financial Assistance to States for Capital Investment’, states were given 50-year interest free loans worth Rs 15,000 crore in financial year 2021-22 (FY22) and that number has been increased to Rs 1 trillion for FY23. The amount is part of the Centre’s Rs 7.5 trillion capex outlay for the next year.

“Going forward, this will be a regular feature and is something that will be required for the infrastructure push. The implementation capacity of many states will have to be expanded. States that have more absorptive capacity will be quicker in implementation and attracting investment. Meanwhile, others will need to develop their own capacities,” a senior official said.

The person added that from FY24, the scheme may be tweaked to incentivise states with lesser infrastructure capacity, including border and Northeastern states. The understanding in the Centre is that states such as Tamil Nadu, Karnataka, Maharashtra, Telangana, and Gujarat would be better able to execute projects and, hence, could avail of more amounts from the scheme in FY23.

In her Budget speech, Union Finance Minister Nirmala Sitharaman had said that the long-term loan to states will be used for the PM GatiShakti scheme and other productive capital investment.

It will also include components for supplemental funding for priority segments of PM Gram Sadak Yojana, including support for the states’ share, digitisation of the economy, including digital payments and completion of OFC network, and reforms related to building bylaws, town planning schemes, transit-oriented development, and transferable development rights.

Some state leaders from Tamil Nadu and West Bengal had dubbed this announcement “anti-federalist” and had taken offence to the scheme being tied to GatiShakti projects. However, as central government officials point out, GatiShakti is not a separate central scheme, but a portal or dashboard for various central departments, state governments, and public sector undertakings to better coordinate project implementation.

Moreover, state government projects are part of the Rs 111 trillion National Infrastructure Pipeline and, hence, are already being monitored through GatiShakti.

The official quoted above also said that since the Rs1 trillion scheme is over and above the states’ fiscal responsibility and budget management (FRBM) limits, they can use their own revenues and proceeds from borrowings for administrative and welfare scheme expenditure.

“If I am a chief minister, I can use my entire revenue plus borrowing for administrative and welfare expenditure and use the extra loans over FRBM limit for capex,” the official said.

The FY23 Budget had also announced that with technical support from the Capacity Building Commission, central ministries, state governments, and their infra-agencies will have their skills upgraded. This will ramp up capacity in planning, design, financing (including innovative ways), and implementation management of the PM GatiShakti infrastructure projects.

The seven planks of PM GatiShakti are roads, railways, airports, ports, mass transport, waterways, and logistics infrastructure. Apart from railways, airports and ports, all other sectors will involve projects exclusively being handled by states, the official said.