States Seek Improvements in 50-Year Interest-Free Loan Scheme

States Seek Improvements in 50-Year Interest-Free Loan Scheme

Sub: Economy

Sec: Fiscal  Policy 

Key Highlights:

1. Union Finance Minister’s Assurance:

• Assured Consideration: Finance Minister Nirmala Sitharaman has assured that States’ ideas and inputs for the Union Budget 2024-25 will receive “due consideration.”
• Pre-Budget Consultation: This assurance was given during pre-Budget consultations on June 22, where State Ministers made several suggestions.

2. Scheme for Special Assistance to States for Capital Investment:

• Launch: The scheme was first launched in 2020-21.
• Current Allocation: The Union government has proposed to allocate ₹1.3 lakh crore for 2024-25, the same amount as in 2023-24.
• State Suggestions: Ministers from States suggested improvements to the scheme.
• Purpose: The scheme is intended to support capital investment projects in States.

3. Meeting Participants:

• Attendees: Finance Ministers from several States, Chief Ministers of Goa, Meghalaya, Mizoram, Nagaland, and Sikkim, and Deputy Chief Ministers of Bihar, Madhya Pradesh, Odisha, Rajasthan, and Telangana attended the meeting.

4. Financial Support to States:

• Timely Devolution: The Finance Minister emphasized the Union Government’s support to States through timely tax devolution.
• Grants and GST Compensation: Finance Commission grants and arrears of GST Compensation are provided to stimulate growth.

5. Conditional Loans:

• Untied Loans: Most of the loans under the scheme are untied.
• Conditional Allocation: A part of the allocation is conditional and linked to citizen-centric reforms and sector-specific capital projects.
• Criteria Fulfillment: States are encouraged to avail these loans by meeting the requisite criteria.

Summary: States have requested improvements to the 50-year interest-free loan scheme aimed at capital investments, with the Finance Minister assuring that their inputs will be considered for the Union Budget 2024-25. The scheme’s proposed allocation for 2024-25 remains ₹1.3 lakh crore. The meeting highlighted the Union Government’s commitment to support States through tax devolution, grants, and GST compensation, with an emphasis on fulfilling criteria for conditional loans.

Scheme for Special Assistance to States for Capital Investment

About:

• Financial Assistance: The scheme provides financial assistance to State Governments in the form of a 50-year interest-free loan for capital investment projects.
• Allocation for FY 2022-23: A total financial assistance of ₹1 lakh crore is allocated to states for the financial year 2022-23.
• Above Borrowing Ceiling: This loan is over and above the normal borrowing ceiling allowed to states for FY 2022-23 and must be spent within the same year.

Eligible Parts of the Scheme:

• New or Ongoing Projects: The scheme covers both new and ongoing projects, as well as settling pending bills for ongoing capital projects.
• Project Submission: States can submit projects of higher value than the allocated funds, indicating their preference or priority.

Different Parts of the Scheme:

• Capital Works: Priority is given to projects under the PM Gati Shakti Master Plan.
• PM Gati Shakti: Related expenditures under this initiative.
• PM Gram Sadak Yojana: Rural road development projects.
• Digitisation Incentives: Projects promoting digital infrastructure.
• Optical Fibre Cable: Enhancing digital connectivity.
• Urban Reforms: Initiatives for urban development.
• Disinvestment and Monetisation: Projects related to disinvestment and monetisation.

Exclusion:

• Small Projects: Projects with a capital outlay of less than ₹5 crore (₹2 crore for North East) are not eligible.
• Repair and Maintenance: Projects for repair and maintenance, irrespective of the capital outlay, are excluded.