The central government is accelerating the release of capital expenditure (capex) loans to states, with disbursements projected to reach approximately Rs 90,000 crore by December. This amount represents nearly two-thirds of the Rs 1.5 lakh crore FY25 target. The increased pace of loan distribution is intended to counter earlier delays, particularly in tied loan rollouts.
What is capex Loan?
A capex loan (capital expenditure loan) is a type of financial assistance provided by the central government to state governments to fund infrastructure and development projects that contribute to economic growth. Capex loans are often granted with specific conditions and long repayment periods, sometimes interest-free, to encourage state governments to undertake and expand critical projects.
Breakdown of the FY25 Capex Loan Allocation
For the fiscal year 2025, the Centre allocated Rs 1.5 trillion in capex loans to states. This amount is divided into two categories:
- Tied Loans (Rs 95,000 crore): These loans require states to meet specific reforms and criteria set by the central government.
- Untied Loans (Rs 55,000 crore): These are unrestricted funds that states can allocate to projects of their choice.
Of the total loan package, Rs 95,000 crore is tied to measures like boosting capex, supporting industrial growth, completing key infrastructure projects, and advancing land reforms. Meanwhile, Rs 55,000 crore is designated as untied loans, allowing states to select and prioritize their own initiatives.
Current Status of Loan Sanctions and Disbursements
So far, the Centre has approved loans worth Rs 70,000 crore, with about Rs 40,000 crore already disbursed to states. Initial delays in the release process were largely due to general elections conducted during the first financial quarter. A senior official indicated that an additional Rs 25,000 crore will likely be released in November, with another Rs 25,000 crore following in December. This plan aims to help the government meet its disbursement target for the fiscal year.
Criteria for Tied Loan Disbursements
The government has started disbursing tied loans based on specific state performance criteria, including:
- Capex Performance: States are rewarded for effectively managing and increasing their capital expenditures.
- Participation in Centrally Sponsored Schemes: Funds are tied to states’ contributions to projects under centrally sponsored programs.
- Single Nodal Agency Model: States that implement a single nodal agency for efficient fund management are prioritized in loan disbursements.
Incentives for High Capex Performance
The central government has introduced incentives to encourage states to meet capex targets. A total of Rs 25,000 crore in tied funds is earmarked specifically for states that perform well in capex. Additionally, Rs 15,000 crore has been allocated to cover the state share of major infrastructure projects and to support centrally sponsored programs at the state level.
Increase in Capex Loan Outlay for FY25
In the regular budget presented on July 23, the Centre raised the capex loan outlay by Rs 20,000 crore, increasing it from Rs 1.3 trillion to Rs 1.5 trillion for the fiscal year. This increase in allocation is part of the government’s long-term strategy to support infrastructure and economic growth, although the overall capex budget was kept steady at Rs 11.11 trillion. This adjustment underscores the Centre’s commitment to enhancing states’ financial capacity for development projects while maintaining a balanced budget.
