Budget 2023-24: Centre's capex support for states likely to continue

The Central government may continue with the ‘Scheme for Financial Assistance to States for Capital Investment’ in the next fiscal year (2023-24) with a possible allocation of Rs 1 trillion, Business Standard has learnt. This could be announced by Finance Minister Nirmala Sitharaman in her 2023 Union Budget speech.

It has been learnt that during informal discussions between central government officials and their state counterparts, it was conveyed by the latter that many states would like the capex support to continue.

“The scheme has been a success this year, and states have requested they would want it to continue,” said a senior government official. The person said that for now an allocation of Rs 1 trillion, the same amount as for the current fiscal year (FY23), appeared to be enough. But a final decision on the matter would be taken after Sitharaman’s upcoming pre-Budget meeting with state finance ministers.

“Discussions, so far, have been informal. A formal discussion on the scheme is expected between the Centre and states during the finance minister’s pre-Budget meeting with state FMs,” said the official. This meeting may happen later this month or in December.

The scheme, for FY23, consists of Rs 1 trillion, 50-year, interest-free capex loans to states. It is part of the Centre’s capex budget of Rs 7.5 trillion.

In her 2022 Union Budget speech, Finance Minister Nirmala Sitharaman said that the Scheme for Financial Assistance to States for Capital Investment was extremely well received by states, and the allocation was increased to Rs 15,000 crore, from Rs 10,000 crore initially planned for FY22.

“For 2022-23, the allocation is Rs 1 trillion to assist states in catalysing overall investments in the economy. These 50-year interest-free loans are over and above the normal borrowings allowed to states,” she said.

The entire amount has already been disbursed. Of the Rs 1 trillion, Rs 80,000 crore is mostly without conditions. Rs 20,000 crore is tied to PM Gatishakti-related capex investments, the Pradhan Mantri Gram Sadak Yojana, urban sector reforms, and the laying of fibre-optic cables under the Digital India initiative.

The Rs 80,000 crore has been distributed among states under the same formula as for share from the divisible tax pool under the recommendations of the 15th Finance Commission.

Thus the bulk of the amount went to Uttar Pradesh (17.9 per cent devolution from the divisible tax pool), Bihar (10 per cent), Madhya Pradesh (7.8 per cent), West Bengal (7.5 per cent), Maharashtra (6.3 per cent), and Rajasthan (6 per cent).

But there are still two conditions attached to the Rs 80,000 crore amount. One is states’ adoption of the Single Nodal Account (SNA) system, and two is that they should not breach the Centre’s branding rules for centrally sponsored schemes.

Similar conditions are expected to be kept in FY24, as well, it is understood.

In demand
 

• States have informally expressed interest in the scheme continuing
• Allocation amount could be Rs 1 trn for FY24, as well
• Final decision after FM’s pre-Budget meeting with states
• Entire Rs 1 trn allocated for scheme for FY23 has been disbursed
• Centre may not change conditions for taking the scheme