₹1 lakh crore funding budget provision may not be part of state loans

The Budget provision of ₹1 lakh crore, 50-year interest-free loan to states in 2022-23 will not be part of their annual borrowing limit, but will be given on condition that the money will be spent on capital investments and specified reforms that will spur country’s overall economic growth, two officials said.

The Union government will soon announce a mechanism for states to avail the loan facility for the next financial year that is in addition to their current borrowing entitlement, which is 4% of their gross state domestic product (GSDP), the officials aware of the development said requesting anonymity.

“Currently, conditions related to the power sector reforms are known to states, which is required to avail 0.5% out of the total 4% borrowing limit. Comprehensive details for the ₹1 lakh crore additional borrowing are being worked out,” one of the two officials added.

Finance minister Nirmala Sitharaman on February 1 announced that the states would be allowed a fiscal deficit of 4% of GSDP in 2022-23 in accordance with the recommendations of the 15th Finance Commission, with 0.5% of that being tied to power sector reforms.

“Conditions for power sector reforms have already been communicated in 2021-22 and most likely the same will continue with some modifications,” the second person said. Conditions related to the power sector reform to avail the 0.5% fiscal space include reforms in distribution companies (DISCOMs) , transparency in payment of power subsidies, timely audit and regulatory compliance.

The ₹1 lakh crore additional long-term interest free borrowing is meant to support capital spending by states in the wake of the recent economic downturn due to the Covid-19 pandemic, he said. “Higher capital expenditure in the current financial year has helped in quicker economic recovery. As states are the real implementors of infrastructure projects, money is being provided to them for capital spending,” he added.

“The special scheme for providing financial supports to the states for their capital expenditure has been extended in 2022-23, with a jump of 900% in the outlay. In 2021-22, the budget estimate (BE) under this head was ₹10,000 crore,” the first official said.

It is expected that implementation of PM GatiShakti could be one of the conditions to avail this loan offer, he added.

Addressing a webinar on an integrated approach to implement infrastructure projects, Prime Minister Narendra Modi on Monday said: “Strengthening the principle of cooperative federalism, our government has made a provision of one lakh crore rupees for the assistance of the states in this year’s budget. State governments will be able to use this amount on multimodal infrastructure and other productive assets.”

The government plans to roll out from April 1 a well-planned, comprehensive mechanism to implement integrated infrastructure development worth ₹7.5 lakh crore for financial year 2022-23 under the PM GatiShakti initiative.

The PM Gati Shakti – National Master Plan was announced last year with an aim to break departmental silos and bring in more holistic and integrated planning and execution of projects with a view to address the issues of multi-modal and last-mile connectivity.