Why is the govt putting conditions on interest-free loans to states?
covid pandemic, under which it would provide interest-free capital expenditure (capex) loans, will now come with caveats as the government attempts to nudge states to implement specific reforms. Mint explains the rationale behind the government's decision. About ₹80,000 crore of interest-free loans have been sanctioned to states for this fiscal year and almost ₹40,000 crore has been disbursed to states so far.
Of the remaining ₹40,000 crore, about ₹30,000 crore will be disbursed only if states can show progress on reforms or present specific project proposals. The conditions include reforms in the housing sector; providing incentives to scrap government vehicles and ambulances; reforms in urban planning and urban finance; increasing housing stock for police personnel; and setting up libraries with digital infrastructure at the panchayat and ward levels for children and young adults. It’s to ensure that the loan is used to supplement their capex and not as a substitute for it.
These funds can only be used to fund reforms and initiatives, or on sector-specific projects. This condition will apply only for the second installment. Interest-free loans with a tenure of 50 years have played a vital role in stimulating capital spending by the states and catalysing the economy in the aftermath of the pandemic.
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