Budget 2025: Centre Aims to Accelerate State Capex Loans to Hit Rs 1.5 Lakh Crore Target

Pushing for Public Investment in 2025

The Union Government has set an ambitious capital expenditure (capex) loan target of Rs 1.5 lakh crore for FY25. To meet this goal, the Centre is likely to relax some of the stringent conditions tied to these loans, offering states greater flexibility. The decision, if implemented, is expected to spur public investment and stimulate economic growth, ensuring that the funds are fully utilized before the fiscal year ends.

These loans, disbursed as 50-year interest-free advances, play a critical role in bolstering infrastructure development and asset creation across states. However, delays in disbursements have raised concerns about the effective utilization of these funds.

Key Highlights of the Capex Loan Plan

1. Flexible Funding:

   • Of the Rs 1.5 lakh crore allocated for FY25, Rs 55,000 crore is categorized as untied loans, which states can use for projects of their choice.

   • The remaining Rs 95,000 crore is tied to reforms and specific development goals like industrial growth, land reforms, and infrastructure improvements.

2. Slow Disbursements:

   • By the first half of FY25, only Rs 40,000 crore had been disbursed, with an additional Rs 70,000 crore sanctioned. This lags significantly behind the annual target.

3. No Budget Reductions:

   • Despite slower disbursements, the government remains steadfast in its commitment. There are no plans to cut allocations in the revised estimates for FY25.

4. Addressing Reform Delays:

   • Conditional loans tied to reforms have faced delays due to late issuance of guidelines in August 2024 and the impact of elections in various states.

Simplifying Loan Conditions to Boost Utilization

A senior government official revealed that the Centre plans to simplify the process by converting unused tied funds into untied loans. This move will accelerate disbursements and make it easier for states to meet their spending targets.

“Additional allocation to states may be given under the untied part after assessment in January. There are savings in the tied portion, which the government is likely to convert to untied loans,” the official said.

This step is expected to ease administrative bottlenecks and encourage states to focus on high-priority projects in the final quarter of FY25.

Challenges in Disbursements

Election Impact

The alignment of reform-linked guidelines with general and state elections has slowed progress. These delays have made it difficult for states to implement the required reforms, further hindering the disbursement process.

Conditional Reforms

The Rs 95,000 crore tied component is distributed based on 12 conditions, including:

• Growth in tourism infrastructure.

• Establishment of working women’s hostels.

• Vehicle scrappage initiatives.

• Urban land reforms.

While tourism projects have garnered significant attention, other areas like urban reforms have seen slower uptake due to their complex nature.

Strategies for FY25 Success

1. Untied Fund Allocations: By increasing the untied portion of capex loans, the government intends to offer states greater freedom in project selection, enhancing their ability to utilize funds effectively.

2. Incentivizing Growth: Rs 25,000 crore of the tied loans is linked to states achieving at least 10% growth in capex. This performance-based allocation will push states to accelerate spending in critical sectors.

3. Mid-Year Assessments: The government plans to assess progress in January, allowing it to reallocate funds based on performance and ensure the Rs 1.5 lakh crore target is met.

Lessons from FY24

The previous fiscal year saw a reduction in the capex loan allocation from Rs 1.30 lakh crore to Rs 1.05 lakh crore due to several states failing to meet eligibility criteria. States like Andhra Pradesh, Kerala, and Punjab faced setbacks, highlighting the importance of meeting reform requirements for full fund utilization.

Looking Ahead: Ensuring Public Investment

Despite initial delays, the government remains optimistic about achieving the Rs 1.5 lakh crore target for FY25. By simplifying conditions and reallocating funds, the Centre aims to arrest any decline in public capital expenditure.

This strategy not only emphasizes efficient fund utilization but also underscores the government’s commitment to boosting infrastructure, generating employment, and driving economic growth. If executed effectively, the Budget 2025 capex loan plan could serve as a pivotal step in India’s developmental journey.

A Pivotal Year for Capex Loans

Budget 2025 presents an opportunity for the government and states to collaborate effectively. By addressing challenges and streamlining processes, the Centre is positioning itself to achieve a key milestone in public investment. The proposed changes to capex loans signal a shift towards greater flexibility, promising a stronger push for economic resilience and growth in the years to come.