FY24 budget may nudge states to take up reforms
The budget to be presented in Parliament on Wednesday may nudge states to undertake reforms through targeted financial incentives and could extend the ₹1.07 trillion long-term, interest-free loans for another year with increased outlay to boost growth through capital expenditure, people aware of development said.
The Indian economy has been in a stronger position compared to other major global economies despite headwinds like the aftermath of pandemic and the Ukraine war because of the Centre’s strategy to provide additional resources to states in previous budgets and nudge them to spend on creating infrastructure and initiating citizencentric reforms, they said, requesting anonymity. This strategy worked well and will continue in 2023-24, they added.
“Such measures helped the economy in the past as states are the real engine of growth and implementors of reforms. The ₹1.07 trillion scheme – Special Assistance to States for Capital Investment in 2022-23 – has approved projects worth ₹77,110 crore by December 2022 and Centre has already released over ₹41,000 crore. Such investments have multiplier effects on the economy,” one of them said.
The scheme offers 50-year, interest-free loans to states over their annual borrowing limits. In her previous budget speech in February, finance minister Nirmala Sitharaman raised the amount of special assistance by about 900% for 2022-23 from the budget estimate (BE) of ₹10,000 crore in 2021-22. However, the amount for 2021-22 was later increased to ₹15,000 crore. Initially in 2020-21, its corpus was ₹12,000 crore.
“An enhanced allocation under the special assistance is also expected in 2023-24. It will be over and above the normal borrowing ceiling for the states, which is expected to be at 3.5% of their GSDP (gross state domestic product). Out of 3.5% limit, 0.5% is likely to be tied to power sector reforms,” a second person said.
The special assistance is currently provided to states for their investments in infra projects such as PM Gatishakti, building rural roads under the PM Gram Sadak Yojana, digitisation of the economy, digital payments, laying of optical fibre cables, urban reforms such as town planning, road transport and scrapping of old vehicles. The PM Gati Shakti programme was announced in 2021 to break departmental silos and bring in integrated planning and execution of projects with a view to address the issues of multimodal and last-mile connectivity.