Have Room, Must Spend
Prevailing circumstance has brightened the outlook for capital expenditures by state governments.
- Union government has stepped up tax devolution during July-August.
- The interest-free Capex loan scheme for states has seen a sharp pickup in off-take in July.
- The norms for the adjustment of off-budget borrowings for the current fiscal have been eased.
What can be expected?
- The Centre has stepped up the amount of tax devolution to states. But that’s not enough, tax devolution will need to be as high as Rs 9.3 lakh crore this year, overshooting the budget estimates by more than Rs 1 lakh crore.
- Therefore, the amount left to be disbursed to the states in the remainder of the year is quite substantial.
- Stepping up interest-free loans to states: This amount will be given to the states as a loan.
- More time to plan and execute capital projects: The Centre must consider sharing with states the likely amount of devolution before the start of each quarter in order to enable states to plan their capital spending, given the lead time required to plan and execute capital projects.
- More Accurate Market Assessment: It may also result in more accurate assessments of their quarterly market borrowings.