Centre amends norms to boost capex loans to states amid spending decline

The government aims to bridge the FY25 capex gap, with Rs 11.1 trillion budgeted but only Rs 5.13 trillion spent by November, marking a 12.3 per cent year-on-year decline

The Centre has eased several norms to expedite the release of interest-free capital expenditure (capex) loans to states, aiming to ensure the full utilisation of the Rs 1.5 trillion allocated for FY25. The initiative aims to counter the decline in public capex and address potential shortfalls in budgeted capital spending, according to a report by Financial Express.

 

The government’s move seeks to offset a possible gap in actual capex, which was pegged at Rs 11.1 trillion for FY25. By the end of November, only Rs 5.13 trillion had been spent, reflecting a year-on-year decline of 12.3 per cent.

 

The report quoted a senior government official as saying that the Centre will achieve 100 per cent of the target set for capex loans to states this financial year.

 

 

As of now, Rs 90,000 crore — two-thirds of the total outlay — has been disbursed. In comparison, only Rs 61,500 crore was released during the same period in FY24.

Allocation linked to reforms

Out of the Rs 1.5 trillion, Rs 95,000 crore is tied to reforms and state-level performance in areas such as industrial growth stimulation, infrastructure project completion, and land reforms. The remaining Rs 55,000 crore consists of untied funds, which states can allocate to their priority projects.  

 

To further support disaster-hit states, the Centre has amended the norms to allow additional funds. States impacted by severe natural disasters in FY25, as verified by the Ministry of Home Affairs, can receive up to 50 per cent more than their original untied allocation. These funds must primarily be used for rebuilding infrastructure in affected regions and disaster mitigation projects, the report said.  

 

Additionally, states that fully utilise their untied allocations can qualify for extra funding — 100 per cent of their original allocation for North Eastern and hill states, and 50 per cent for other states — on a first-come-first-serve basis.  

Revised criteria for ‘tied’ loans  

The government has relaxed some conditions under the tied component of the capex loans, particularly those related to states’ own capex growth. Originally, Rs 25,000 crore was earmarked as an incentive for states that achieved more than 10 per cent annual capex growth in FY24 and in the first half of FY25. The new rules also reward states that achieve a 10 per cent capex growth in Q2 and Q3 (July–December 2024) or in the first three-quarters of FY25, compared to the corresponding periods in FY24.  

 

Another Rs 5,000 crore has been reserved for states undertaking urban planning reforms in FY25. Revisions in conditions for urban and rural infrastructure projects, along with the SNA SPARSH Model for just-in-time fund release, aim to maximise loans used by states.  

Accelerated disbursal to states  

The pace of loan disbursal has significantly improved, particularly in the last three months, according to a senior state government official. In FY24, the Centre released only Rs 1.05 trillion (70 per cent of the Rs 1.5 trillion target), as many states struggled to meet stringent conditions.  

 

Despite the Centre’s efforts, public capex in the April–November period of FY25 has declined by over 12 per cent year-on-year. Analysts predict that the total capital expenditure for FY25 could fall short of the Rs 11.1 trillion target by Rs 1 trillion to 1.5 trillion, the report said.