States used Rs 82K cr of Rs 1 trillion capex support allotted in FY23

Of the Rs 1 trillion that the Centre provided in long-term loans to states for capital expenditure in the previous fiscal year (2022-23), the latter have availed of Rs 82,000 crore, leaving Rs 18,000 crore unutilised, Business Standard has learnt.

Officials say many states don’t have as much capacity to implement capital intensive, long-gestation projects as the Centre does. Among the larger states, West Bengal has been the biggest laggard, while Uttar Pradesh could not utilise the entire amount it was entitled to, along with some states in the Northeast.

“In our Revised Estimates for FY23, we had estimated that Rs 78,000 crore would be disbursed out of Rs 1 trillion. As of March 31 (end of FY23), Rs 82,000 crore had been taken by states,” a senior government official said.

“Many states have not utilised the entire capex loan amount available to them. West Bengal took just one installment,” the official said. But they hope the offtake will be better in FY24.

The Centre has provided 50-year, interest-free loans to states to augment their capital expenditure requirements in the past three Budgets. The amount was Rs 1 trillion for FY23 and Rs 1.3 trillion for FY24. These loans are a part of the Centre’s own capex targets.

Out of Rs 1 trillion last year, Rs 80,000 crore was mostly without conditions, Rs 20,000 crore was tied to PM Gatishakti-related capex investments, Pradhan Mantri Gram Sadak Yojana, urban sector reforms, and laying of fibre-optic cables under Digital India initiative.

The Rs 80,000 crore chunk was to be distributed to states based on a formula similar to the one followed for the divisible tax pool under the recommendations of the 15th Finance Commission.

Thus, the bulk was expected to go to Uttar Pradesh (17.9 per cent devolution), 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).

The scheme has been popular with states, and most fully availed of the amount they were entitled to. For FY24, the Centre has added further conditions, including one that the capex support should not be included in the states’ budgeted targets for FY24, but should be used to augment them.

For FY24, out of the Rs 1.3 trillion, Rs 1 trillion will be ‘untied funds’ and the rest tied to specific purposes like scrapping old government vehicles, urban planning reforms, housing for police personnel, constructing Unity Malls, etc.

However, there are conditions attached even to the untied funds to ensure that the money is spent on capex projects. The untied amount will be divided into three equal installments of roughly Rs 33,333 crore each.

The third tranche is tied to the capex targets that the Centre has set for states. Most states have budgeted capex spending higher than what the Centre required them to do.