In a bid to meet its ambitious Rs 1.5 lakh crore capital expenditure (capex) loan target for FY25, the Centre is likely to sanction additional funds to states without conditionalities, a senior government official said. The move is expected to accelerate disbursements and ensure full utilisation of the budgeted amount.
“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 and give to states,” the official told Moneycontrol.
By converting tied savings into untied loans, the government aims to simplify the process for states and boost capital spending in the final quarter of FY25.
The capex loans, disbursed as 50-year interest-free advances to states, aim to bolster public investments and durable asset creation. Of the total allocation for FY25, Rs 55,000 crore is currently untied and can be used by states for projects of their choice, while Rs 95,000 crore is tied to specific reforms such as industrial growth, land reforms, and infrastructure development.
However, disbursements have lagged this year, with less than Rs 1 lakh crore approved so far. The Centre disbursed Rs 40,000 crore in the first half of FY25 and sanctioned Rs 70,000 crore, far from the annual goal of Rs 1.5 lakh crore.
“The aim is to meet the Rs 1.5 lakh crore target in FY25. There is no proposal to cut the state loan for capex or reduce the amount budgeted in the Union Budget’s revised estimates exercise,” the official added.
Despite the slow start, the government is optimistic about meeting the target. “The government is working to ensure that the entire Rs 1.5 lakh crore earmarked for FY25 is fully utilised, helping arrest a decline in public capex,” the official noted.
Delays due to elections and conditional reforms
The tied portion of the capex loans has seen slower disbursements due to delays in states meeting reform-linked guidelines, which were issued in August instead of February. This delay coincided with general and state elections, further hindering states' ability to implement the required reforms.
Among the 12 conditional allocations under the tied component, tourism projects have been the most popular among states. Other focus areas include working women’s hostels, vehicle scrappage, and urban land reforms.
Out of the Rs 95,000 crore tied loans, Rs 25,000 crore is linked to states achieving at least 10 percent capex growth. Half of this amount is based on performance in FY24, while the remaining will be released based on growth in April-September FY25.
In FY24, the Centre had initially allocated Rs 1.30 lakh crore but reduced it to Rs 1.05 lakh crore after some states, including Andhra Pradesh, Kerala, and Punjab, failed to meet eligibility criteria.
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