The Government of India has increased financial support to states for capital expenditure. In the 2024-25 Budget, the allocation for interest-free loans was raised to Rs 1.5 lakh crore. This is a notable increase from Rs 1.10 lakh crore in the previous fiscal year. The initiative aims to enhance infrastructure development and implement essential reforms across various sectors.
Overview of the Loan Scheme
The scheme for special assistance to states facilitates loans for capital expenditure. The Centre has approved loans worth Rs 1.22 lakh crore until January 31, 2025. Out of this, Rs 1.11 lakh crore has already been disbursed. The scheme is designed to boost state-level infrastructure projects and encourage economic growth.
Allocation Breakdown
The total allocation of Rs 1.5 lakh crore is divided into two parts. Rs 55,000 crore is untied funding. This amount is distributed among states based on their share of central taxes as per the 15th Finance Commission’s recommendations. The remaining Rs 95,000 crore is earmarked for specific projects and reforms targeting citizen-centric areas.
Focus Areas for Funding
The funding aims to stimulate various sectors. It includes projects for developing iconic tourist centres and incentives for scrapping old vehicles. The initiative also seeks to promote industrial growth. These targeted investments are expected to create jobs and enhance public services.
Top Beneficiary States
Bihar, Uttar Pradesh, Madhya Pradesh, and West Bengal are the leading beneficiaries of this funding. Bihar received Rs 11,522 crore, followed by Uttar Pradesh with Rs 10,795 crore. Madhya Pradesh and West Bengal received Rs 10,166 crore and Rs 9,729 crore, respectively. These states are utilising the funds to improve infrastructure and public services.
Impact on State Development
The increased allocation is expected to have impact on state development. It provides states with the resources needed to undertake large-scale infrastructure projects. This, in turn, can lead to improved economic conditions and enhanced quality of life for citizens.
Future Prospects
The government’s focus on capital expenditure through this loan scheme indicates a long-term strategy for economic growth. Continued investment in infrastructure is crucial for sustaining development. The success of this initiative will depend on effective implementation and monitoring by the states.
Questions for UPSC:
- Discuss in the light of the impact of financial assistance on state-level infrastructure development in India.
- Critically examine the role of the 15th Finance Commission in the distribution of central funds to states.
- Explain the significance of interest-free loans for capital expenditure in the context of economic growth.
- With suitable examples, discuss the challenges faced by states in utilising capital expenditure loans effectively.
Answer Hints:
1. Discuss in the light of the impact of financial assistance on state-level infrastructure development in India.
- Financial assistance enables states to undertake large-scale infrastructure projects.
- Improved infrastructure leads to enhanced economic conditions and quality of life.
- States can invest in essential services such as transportation, healthcare, and education.
- Financial support can stimulate job creation and attract private investments.
- Successful infrastructure projects can have multiplier effects on local economies.
2. Critically examine the role of the 15th Finance Commission in the distribution of central funds to states.
- The 15th Finance Commission assesses revenue sharing between the Centre and states.
- It recommends allocations based on states’ fiscal needs and population metrics.
- Distribution is intended to ensure equitable access to resources among states.
- It plays important role in determining untied and earmarked funds for specific projects.
- Critics argue that the recommendations may not fully address regional disparities.
3. Explain the significance of interest-free loans for capital expenditure in the context of economic growth.
- Interest-free loans reduce the financial burden on states, allowing more investment in infrastructure.
- They encourage states to undertake projects that may have been financially unfeasible otherwise.
- Such loans can stimulate economic activities, leading to increased GDP growth.
- They promote fiscal discipline by encouraging states to focus on productive expenditures.
- Long-term infrastructure improvements encourage sustainable economic development.
4. With suitable examples, discuss the challenges faced by states in utilising capital expenditure loans effectively.
- States may lack the administrative capacity to implement large projects efficiently.
- Delays in project approvals and execution can lead to cost overruns and inefficiencies.
- Corruption and mismanagement can hinder effective utilization of funds.
- Some states may face difficulties in aligning projects with national priorities.
- Examples include Bihar’s challenges in infrastructure execution despite substantial funding.
