-1.6 C
New York
Thursday, February 2, 2023

Buy now

18 states get ₹54,000 crore in capex loans

1 trillion was allocated as interest-free 50-year capital expenditure loans for states to spend on new or ongoing projects. The increase in the amount sanctioned comes amid a slow capex decline by states in the first few months, with 21 states reaching an average of just 15% of the budgeted target through July.

“We almost have 54,000 crore until recently to states of the 1 trillion allocated as interest-free loans,” said a senior finance ministry official.

The increase in the amount sanctioned points to a possible revival of job creation in the second half of the budget year.

Capital expenditures act as a multiplier for economic growth with expenditures on infrastructure projects. The states that have been awarded the sanctioned amount are Maharashtra, Tamil Nadu, Kerala, Karnataka and Haryana.

To encourage early capital spending, the Center has also implemented tax decentralization to states.

It released two tranches of tax devolution to states for an amount of 1.17 trillion in August, against the normal monthly devolution of 58,333 crores.

Funds provided to the states under the interest-free loans can be used for new and ongoing capital projects and to settle outstanding accounts.

Aditi Nayar, ICRA Ltd’s chief economist, said that while sanctions are healthy, yields from interest-free government investment have been muted until August.

“We are hopeful that activity will accelerate significantly in the months after the monsoon,” Nayar said.

She added that the question is whether states will use it to fund the capex budgeted or for additional capex on top of what they budgeted.

“The implementation will play a role there. How much can they run this year? If they can carry out more than budgeted, that is additional. Otherwise, it might just be financing what was budgeted for this year anyway,” Nayar said.

The Center releases the capex to states with terms such as facilitating Gati Shakti, financing Prime Minister Gram Sadak Yojana, promoting digitization, laying fiber optic cable networks, urban reforms, divestments and monetization.

“This, coupled with an uptick in economic activity, is expected to generate enough revenue for states to push for higher capital expenditures. That’s why we expect to see an improvement in state capital spending in the coming months,” said Rajani Sinha, CareEdge’s chief economist.

While the first tranche of 50% of the amount would be released after the list of projects submitted by the state is approved, the remaining tranche will be awarded as the second tranche after the certificate of use is submitted.

Devendra Kumar Pant, chief economist, India Ratings, said that while revenue collection for both union and state governments has shown good buoyancy, capex has not maintained the same pace. “One of the main reasons for the slow growth in capital spending is the change in the borrowing limits of the states. Loans by state-owned companies in the public sector are now part of the state’s net borrowings.”

Even state-owned public sector loans made in the previous fiscal year will be adjusted over the next five years. Because the revenue expenditure is sticky, there is little room for control and in such a situation the ax falls on the capex,” said Pant.

Madan Sabnavis, chief economist at the Bank of Baroda, said that as we are now in the second half of the year, states tend to align capital expenditures with revenue streams. He added that this will accelerate further in the fourth quarter. Per-center sanctions will provide a basis for states that may experience a slowdown in revenues as consumption declines, he said.

While 80,000 crore will be allocated to the states in proportion to their share of central taxes and levies in accordance with the recommendations of the 15th Finance Commission) for projects chosen by them, the remaining 20,000 crore will be for specific purposes.

Questions emailed to the Treasury Department went unanswered until press time.

The Government of India reserves the right to reject any project which, in its opinion, does not have sufficient economic value in terms of short term stimulation coupled with long term benefits to the economy,

Project with capital investment of less than 5 million ( 2 crore for northeastern states) and repair and maintenance projects, regardless of capital expenditure, will not be taken into account under the scheme.

Check out all the political news and updates on Live Mint. Download the Mint News app for daily market updates and live business news.

More or less

Source link

Related Articles

LEAVE A REPLY

Please enter your comment!
Please enter your name here

Stay Connected

0FansLike
3,692FollowersFollow
0SubscribersSubscribe

Latest Articles