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Higher Capex Loans
Context:
During the pre-budget session, states demanded higher capex loans from the centre towards the state.
About:
- During FY2020-21, the Centre launched a programme to provide the state with interest-free loans for 50 years for infrastructure development.
- The Centre’s Effective Revenue Expenditure contains revenue expenditures made towards the state that are used for infrastructure development.
- The funds for infrastructure development come as additional financial support as observed by Reserve Bank of India’s ‘State Finances: A Study of Budgets of 2024-25’ report.
- The report raises concerns that free/subsidised services, loan waivers, and other cash transfers (included under revenue expenditure) reduce the funds available for infrastructure development.
- Former Chief Economic Advisor Krishnamurthy Subramanian, in the book “India@100:Envisioning Tomorrow’s Economic Powerhouse” also stresses the importance of capital expenditure (“capex”), which has 3-fold benefits.
- It increases demand and supply, unlike revenue expenditure (“revex”), which merely enhances demand.
- Capex allows “crowding in” of private investment, unlike revex, which leads to “crowding out” of private investment.
- Capex provides a farsighted policy.
Benefits of Capital Expenditure:
- Better Infrastructure
- Rise in Quality of Services
- Seamless Logistics and Delivery of Goods and Services
- Quality of Infrastructure (Ratio of Capex to Revex Increases)
- Better Human Capital Development
- Income & Employment Generation
- More Revenues to the Government
What have been the major bottlenecks in state finances?
- The 15th Finance Commission has made recommendations regarding tax devolution through Census 2011. This has been a concern for the southern states that went through a population growth control programme, thus reducing their share of tax.
- Centrally Sponsored Schemes where the funds are operated jointly by the Centres and state governments. States run their own welfare programmes, along with these Centrally-operated schemes, which expand their expenditure.
- States also face issues of tax distribution, considering the rise in surcharges that are solely kept with the central government.
- State governments are taking the toll of losses borne by the distribution companies (DISCOMs).
- States are somewhere spending (according to the Policy Review by the PRS Legislative Research) 8-9% (with states like Punjab making up to 17% of the revenue receipts) of the revenue receipts on subsidies, popularly in the arena of economics as “Revadinomics” or “Freebies”.
