Union Government Announces ₹37,000 crore Additional Funding For Infrastructure,₹37,000 Interest-free 50-year Loan To States For Capital Projects

In a bid to provide a boost to infrastructure, Union Finance minister Nirmala Sitharaman on Monday (Oct 12) announced that additional budget of 25,000 crore will be provided as capital expenditure to develop roads, defence, water supply, urban development and domestically produced capital equipment. This will be in over and above the 4.13 lakh crore provided for in the Union Budget for 2020-21.

The Finance Minister said that money spent on infrastructure and asset creation has a multiplier effect on the economy as it not only improves current GDP but also future GDP. The FM said the government is providing a new thrust to Capital Expenditure of both States and Centre by issuing a special interest-free 50-year loan to States of Rs. 12,000 crore Capital Expenditure.

Providing further details, the FM said that the scheme will consist of 3 Parts.

Part – 1 of the scheme provides for:

  • Rs. 200 crore each for 8 North East states (Rs. 1,600 crore)
  • Rs. 450 crore each Uttarakhand, Himachal Pradesh (Rs. 900 crore)

Part – 2 of the scheme provides for:

  • Rs. 7,500 crore for remaining states, as per 15th Finance Commission devolution.

The Finance Minister said that both Part 1 and Part 2 of interest-free loans given to States are to be spent by 31st March, 2021 and 50% will be given initially, the remaining 50% will be given upon utilization of first 50%. Unutilised funds will be reallocated by the Central Government.

Under Part – 3 of Rs. 12,000 crore interest-free loans to states, Rs. 2,000 crore will be given to those states which fulfill at least 3 out of 4 reforms spelled out in Aatma Nirbhar Bharat Package (ANBP)announced dated 17th May 2020. Rs 2,000 crore is over and above other borrowing ceilings. In May this year, the Union government raised borrowing limits for states for the current fiscal from the 3% of gross state domestic product to 5%.

All the monies under the scheme will have to be utilised by March 31, 2021.

“States can spend the money for new or ongoing capex projects or settle bills of suppliers on such projects. All of this has to be spent by 31 March 2021,” the FM said.

“The covid-19 pandemic has adversely affected economy. Supply side constraints have been eased but consumer demand needs boost. (As of now, needs of the poor, weaker sections have been addressed in the Atma Nirbhar Bharat package an its extensions,”the FM added.