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The Indian government’s initiative to bolster state-level capital expenditure through interest-free loans has seen significant progress, with allocations nearing the ambitious target of ₹1.5 lakh crore for the fiscal year 2024-25. This ambitious plan aims to boost infrastructure development and stimulate economic growth by enhancing public investments across the country. Despite initial challenges, including a slow start due to general elections and reform-linked conditions, the Centre has relaxed several norms to ensure full utilization of the budgeted amount.
In recent years, the Indian government has been prioritizing capital expenditure (capex) as a key strategy for economic growth. The allocation of ₹1.5 lakh crore for special assistance to states is part of this broader initiative, providing interest-free loans over a long tenure of 50 years. These loans are designed to support the creation of durable assets and improve infrastructure across various sectors.
The beginning of FY25 faced several challenges, including delays in project implementation due to elections and slower disbursements because of reform-linked conditions. However, by relaxing some of these conditions, the Centre aims to accelerate disbursements and ensure that states can fully utilize the allocated funds before the fiscal year ends.
Key Challenges:
To address these challenges and meet the ambitious targets, the Centre has recently relaxed several conditions for availing these loans. For instance, states that have utilized earlier installments and those affected by disasters are eligible for more flexible terms. Additionally, for FY26, new guidelines have been issued, allowing a significant portion of the loans to be disbursed as untied or project-linked funds.
New Guidelines for FY26:
The emphasis on infrastructure through these capex loans is expected to significantly enhance the quality and reach of public services across the country. Projects in focus include:
Despite initial challenges, the government remains optimistic about meeting the target for FY25. The Centre’s efforts to ease conditions and accelerate disbursements are crucial for boosting state-level capex, which has seen a slowdown. This push is expected to not only enhance infrastructure but also stimulate economic growth by increasing public investments.
Economic Prospects:
As India’s capex loans to states approach the target of ₹1.5 lakh crore, despite facing initial challenges, the government’s proactive approach to relax conditions and accelerate disbursements underscores its commitment to infrastructure development and economic growth. This ambitious initiative, if fully successful, could set a precedent for future economic strategies focused on leveraging state-level capex to drive national development.
