States ask FM for more funds under loan scheme, higher borrowing cap

Finance ministers of states demanded an increase in allocation of 50-year interest free loan, while fiscally stressed states like Punjab and Kerala pitched for a special package and borrowing flexibility, sources said.

In a pre-budget meeting with Union Finance Minister Nirmala Sitharaman, states have also urged for higher borrowing limits to support fiscal activities, besides additional funds for Jal Jeevan Mission to arrange for tanks and storage to enhance water supplies.

Sources said in the meeting, Maharashtra wanted funds for Mukhyamantri Majhi Ladki Bahin Yojana and demanded that a Centrally Sponsored Scheme (CSS) be launched with the Centre and state sharing 50 per cent of the cost each.

The Budget for 2025-26 is slated to be presented in Parliament on February 1, 2025. Finance ministers of all states attended Friday's meeting with Sitharaman here.

Several states demanded increase in allocations for the 50 years interest-free loan scheme, sources said, adding they also requested for more flexibility in the Special Assistance for Capital Investment (SASCI) scheme under this category.

In the Budget for 2024-25, Sitharaman had hiked the allocations for interest-free loans to states for capital expenditure, enabling states to spend more on infrastructure and specified reforms. The allocation was increased to Rs 1.5 lakh crore from Rs 1.10 lakh crore disbursed in 2023-24.

With regard to road and rail infrastructure, sources said, states highlighted the need for state-specific road development projects and railway projects  They also sought an increase in the honorarium being paid to Accredited Social Health Activists (ASHA) workers.

Some states asked the central government to bear a larger share of land acquisition costs for projects, the sources added.

Fiscally stressed states like Punjab and Kerala sought special financial packages. Their demands included more loans, grants, and borrowing flexibility.

Sources said states emphasised the need for additional funding for disaster relief and pressed for more allocation for the State Disaster Response Fund (SDRF).

Kerala Finance Minister K N Balagopal in his speech said the Centre has to recognise that fiscal consolidation achieved through restrictions in government expenditure may not necessarily be a desirable outcome.

"We reiterate that fiscal consolidation targets should not compromise sustainable growth. Instead, state governments should be empowered to fulfil their expenditure commitments and implement macroeconomic policies that drive faster national economic growth," Balagopal said.