Govt may redesign capex loan scheme over states’ reliance: Report
The Indian government is considering redesigning its 50-year interest-free loans scheme for states as many are relying heavily on it to meet their capital expenditure needs, according to a recent report by Moneycontrol. This move is seen as a step towards encouraging states to prioritize infrastructure spending over revenue expenditure, especially to fund freebies before polls.
The interest-free loans scheme was introduced by the Centre to help states finance their capital expenditure projects, such as infrastructure development, road construction, and other public works. However, the scheme has been criticized for its unintended consequences, including states relying too heavily on the Centre’s generosity and neglecting their own resources.
The Centre is concerned that states are prioritizing revenue expenditure, such as funding freebies and subsidies, over infrastructure spending. This is not only affecting the country’s overall economic growth but also compromising the quality of public services and infrastructure.
The report suggests that the Centre is planning to redesign the scheme to make it more sustainable and less reliant on the Centre’s funds. One possible solution is to introduce a hybrid model, where states can access interest-free loans for a limited period, say 5-10 years, and then gradually switch to commercial borrowing.
Another option being considered is to introduce a conditionality clause, where states are required to utilize a certain percentage of their own funds for capital expenditure before availing the Centre’s interest-free loans. This would encourage states to prioritize their own resources and think more strategically about their infrastructure spending.
The Centre’s decision to redesign the scheme is also driven by concerns that interest-free loans may actually discourage states from using their own funds for capital expenditure. When states do not have to bear the burden of interest payments, they may be less inclined to allocate their own resources for infrastructure projects.
The Centre’s concern is not unfounded. A recent analysis by the National Institute of Public Finance and Policy (NIPFP) found that states are not utilizing their own resources effectively for capital expenditure. The analysis revealed that states are relying heavily on the Centre’s grants and loans to fund their capital expenditure needs, rather than using their own resources.
The NIPFP analysis also found that states are not prioritizing infrastructure spending, with many allocating a significant portion of their funds to revenue expenditure, such as funding freebies and subsidies. This is not only affecting the quality of public services and infrastructure but also compromising the country’s overall economic growth.
The Centre’s decision to redesign the capex loan scheme is likely to have far-reaching implications for the country’s infrastructure development and economic growth. By encouraging states to prioritize their own resources and think more strategically about their infrastructure spending, the Centre can help create a more sustainable and self-sufficient economy.
However, the redesign of the scheme is also likely to face resistance from states, which have grown accustomed to the Centre’s generosity. States may need to be persuaded to adopt a more sustainable approach to infrastructure spending, and the Centre may need to provide incentives and support to help them do so.
In conclusion, the Centre’s decision to redesign the capex loan scheme is a welcome move towards creating a more sustainable and self-sufficient economy. By encouraging states to prioritize their own resources and think more strategically about their infrastructure spending, the Centre can help create a more robust and resilient economy that benefits all.
