Centre to extend interest free loans worth Rs 15000 crores to states to ramp up state expenditure

The Centre is extending an additional Rs 15,000 crore loans interest-free 50-year loans to states in order to raise their capital spending, including ₹5,000 crore if states carry out monetization of their assets along with public sector divestment. This comes as the economy struggles to recover from the consequences of a second wave of Covid-19 infections.

For the fiscal year of 2021-22, the Department of Expenditure has released new guidance with respect to the "Scheme of Financial Assistance to States for Capital Expenditure."

A total of Rs 2,600 crore has been set aside for North-eastern and hilly states, with Rs 400 crore each going to Assam, Himachal Pradesh and Uttarakhand. Others in this category will each been given Rs 200 crore. While the remainder of the states will get about Rs 7,400 crore in accordance with their share of central taxes.

In her budget address, the Finance Minister had declared that the Centre would take steps to encourage states to spend more on infrastructure expenditure and disinvest in their state public sector enterprises. State governments receive financial aid in the form of a 50-year interest-free loan under this arrangement. For 2020-21, an amount of not more than 12,000 crores was set aside of which a total of 11,830.29 crore issued by the Centre.

The Finance ministry explained in a statement, “This helped sustain state-level capital expenditure in the pandemic year. In view of the positive response to the scheme and considering the requests of state governments, the Centre has decided to continue the scheme in the year 2021-22.”

The states will be offered interest-free 50-year loans ranging from 33% to 100% of the proceeds from asset monetisation, listing and disinvestment.