Centre eases capex loan norms to boost spending amid decline

To ensure full utilization of the ₹1.5 trillion allocated for interest-free capital expenditure (capex) loans in FY25, the central government has relaxed several conditions for states. The decision comes as a measure to address the dip in public capex and potential shortfalls in budgeted capital spending.

The government’s move aims to mitigate a possible gap in actual capex, which was initially set at ₹11.1 trillion for FY25. As of November, only ₹5.13 trillion had been utilized, marking a 12.3% year-on-year decline. A senior official assured that the Centre is on track to meet its target for capex loans to states, with ₹90,000 crore already disbursed — a significant increase from ₹61,500 crore during the same period last year.

Allocation Linked to State Reforms

Of the total ₹1.5 trillion, ₹95,000 crore is tied to specific state-level reforms, such as promoting industrial growth, completing infrastructure projects, and implementing land reforms. The remaining ₹55,000 crore is untied, allowing states to allocate these funds to priority projects.

To support states impacted by severe natural disasters in FY25, the Centre has amended norms to provide up to 50% more than their untied allocation. These additional funds must be used for rebuilding infrastructure and disaster mitigation efforts in affected regions.

States that exhaust their untied allocations are also eligible for extra funding. North Eastern and hill states can receive an amount equal to their original allocation, while other states may get up to 50% more, depending on availability and on a first-come-first-serve basis.

Changes in Tied Loan Conditions

The conditions for tied loans have also been eased. Earlier, ₹25,000 crore was set aside for states achieving over 10% capex growth in FY24 and the first half of FY25. Under revised norms, states meeting the 10% growth target in either the July–December period or the first three quarters of FY25, compared to FY24, will also qualify for these incentives.

Additionally, ₹5,000 crore has been allocated to states pursuing urban planning reforms in FY25. To ensure timely disbursal and efficient fund utilization, the government has introduced changes to conditions governing urban and rural infrastructure projects, alongside the SNA SPARSH Model for just-in-time fund release.

Accelerating Disbursals

The Centre has accelerated loan disbursals in recent months to help states meet their spending targets. A senior state government official noted that while only ₹1.05 trillion of the ₹1.5 trillion capex loan target was disbursed in FY24, the process has improved this year.

Despite these efforts, public capex from April to November FY25 has seen a year-on-year decline of over 12%. Analysts caution that the total capital expenditure for FY25 may fall short of the ₹11.1 trillion target by ₹1 trillion to ₹1.5 trillion.

The eased norms reflect the Centre’s commitment to driving capital investments amid concerns over declining expenditure, emphasizing the need for states to align with the revised framework for better outcomes.