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Govt to give Rs 12,000 cr interest-free 50-year loan to states for capital projects, announces FM Sitharaman

Finance Minister Nirmala Sitharaman said a special interest-free 50-year loan will be issued to states by the Centre for Rs 12,000 crore capital expenditure.

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Finance Minister Nirmala Sitharaman on Monday said a special interest-free 50-year loan will be issued to states by the Centre for Rs 12,000 crore capital expenditure. Addressing a press conference Sitharaman said, “Capital expenditure — money spent on infrastructure and asset creation — has a multiplier effect on the economy, it not only improves current GDP but also future GDP, we want to give a new thrust to capital expenditure of both states and Centre.”

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“We are issuing a special interest-free 50-year loan to states for Rs 12,000 crore capital expenditure. It will be issued in three parts. In Part 1, Rs 200 crore each for eight North-East states and Rs 450 crore each for Uttarakhand, Himachal. In Part 2, Rs 7,500 crore for remaining states, as per 15th finance commission devolution. In Part 3, Rs 2,000 crore for the state which meets at least 3 out of 4 reforms given in Aatma Nirbhar fiscal deficit package,” she added. Both Part 1 and Part 2 of interest-free loans given to states are meant to be spent by March 31, 2021, in which 50 per cent will be given initially, remaining upon utilisation of first 50 per cent, Finance Minister said.

The Finance Minister was addressing at a time when the country’s GDP had contracted 23.9 per cent during the April-June quarter. This quarter took the hardest hit of coronavirus-induced lockdown across the country. The Reserve Bank of India has predicted that the whole financial year’s GDP would shrink 9.5 per cent in the current fiscal. The Finance Minister also announced an additional budget of Rs 25,000 crore (in addition to Rs 4.13 lakh crore given in Budget 2020) will be provided for capital expenditure of the Centre on roads, defence, infrastructure, water supply, urban development, and domestically produced capital equipment.

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“We estimate that the measures announced today, for boosting consumer spending and capital expenditure, will boost demand by Rs 73,000 crore, to be spent by March 31, 2021. Given that private sector spending through LTC tax benefit would be at least Rs 28,000 crore, we estimate the total demand boost due to today’s measures to be more than Rs 1 lakh crore,” she said. “Today’s solution should not cause tomorrow’s problem. The central government has kept in mind that measures to stimulate demand must not burden the citizen with future inflation or put government debt on an unsustainable path. If demand goes up based on the stimulus measures announced today, it will have an impact on those people who have been affected by COVID-19 and are desperately looking for demand to keep their business going,” she added.

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