In a landmark announcement, Finance Minister Nirmala Sitharaman revealed that the Centre plans to treat capital expenditure (capex) loans given to states as grants. This transformative policy shift is designed to support state governments by relieving them of the repayment burden and enhancing their capacity to undertake significant infrastructure projects.
The ‘Scheme for Special Assistance to States for Capital Expenditure,’ introduced post-Covid, has already disbursed Rs 2.17 trillion and is set to provide an additional Rs 1.5 trillion in FY25, bringing the total assistance to Rs 3.7 trillion from FY21 to FY25. This initiative aims to foster economic recovery and infrastructure development across states by converting these loans into grants.
During the debate on the Finance Bill 2025, Sitharaman explained that the shift from loans to grants would empower states to complete long-pending projects and initiate new ones without the constraint of repayment obligations. “We are making states also take up capex by giving them interest-free 50-year loans which eventually will probably be treated as grants only,” she stated.
This move aligns with Prime Minister Narendra Modi’s emphasis on enhancing capital expenditure as a strategy for economic revival post-Covid. Sitharaman highlighted that this approach has positioned India as one of the fastest-growing economies and is expected to sustain this growth trajectory in FY25.
The Finance Bill 2025’s passage in the Rajya Sabha marks the conclusion of the FY25 Budget approval process. Sitharaman underscored the Budget's balanced focus on growth, job creation, capital expenditure, and fiscal consolidation.
Additionally, Sitharaman addressed concerns about insolvency procedures, ensuring that defaulting promoters are barred from re-bidding for their companies at reduced prices. She also noted the increase in the budget allocation for capital expenditure from Rs 1.44 trillion last year to Rs 1.52 trillion this year.
Regarding household savings, Sitharaman acknowledged the evolution of investment portfolios and advised that financial savings now encompass a variety of options beyond traditional small savings schemes.
By converting capex loans into grants, the Centre aims to provide states with greater financial flexibility, drive infrastructure development, and bolster economic resilience. This strategic shift underscores the government's commitment to supporting state economies and advancing national growth.
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