While the initiative is likely to be welcomed by states, analysts suggest that the central government should assess the impact of previous interest-free loans on state-level infrastructure development.
01 Feb 2025 | 6214 Views | By Shahkar Abidi
Finance Minister Nirmala Sitharaman has proposed an outlay of Rs 1.5 lakh crore in 50-year interest free loans to states in the Union Budget 2025, in a bid to boost capital expenditure. The funding is expected to support state-level infrastructure projects, including road networks and industrial corridors, enhancing market accessibility ...
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Finance Minister Nirmala Sitharaman has proposed an outlay of Rs 1.5 lakh crore in 50-year interest free loans to states in the Union Budget 2025, in a bid to boost capital expenditure. The funding is expected to support state-level infrastructure projects, including road networks and industrial corridors, enhancing market accessibility for automotive manufacturers and suppliers.
While the initiative is likely to be welcomed by states, analysts suggest that the central government should assess the impact of previous interest-free loans on state-level infrastructure development. A thorough evaluation could offer insights into the challenges states may face in effectively utilizing these funds. Experts also emphasize the need for a state-wise assessment to ensure that allocations align with infrastructure demands.
PPP model to attract private investment
Each infrastructure-related ministry has been directed to develop a three-year pipeline of projects suitable for implementation under public-private partnership (PPP) models. Additionally, states are encouraged to participate, with financial support available from the India Infrastructure Project Development Fund (IIPDF) to help prepare PPP proposals. This strategic approach is designed to attract private investment, potentially strengthening the logistics and supply chain networks critical to industries such as automotive and manufacturing.
While the budget underscores the importance of PPPs and the IIPDF, industry experts note that the government must address challenges in attracting private capital, particularly in infrastructure sectors where returns may take longer to materialize.
Urban development and infrastructure expansion
The budget proposes an Urban Challenge Fund of Rs 1 lakh crore to support initiatives such as "Cities as Growth Hubs," "Creative Redevelopment of Cities," and "Water and Sanitation." The fund will finance up to 25% of bankable project costs, with at least 50% of funding required from bonds, bank loans, and PPPs. An initial allocation of Rs 10,000 crore has been set for 2025-26. These initiatives aim to improve urban infrastructure, with potential benefits for urban mobility and smart city developments, areas that directly impact the automotive sector's focus on urban transportation solutions.
Expanding regional air connectivity and maritime infrastructure
The UDAAN scheme, which has connected 88 airports and operationalized 619 routes, is set for expansion. A modified version will add 120 new destinations, aiming to serve 4 crore passengers over the next decade. The initiative will also support helipads and smaller airports in untapped regions, improving regional connectivity and facilitating faster movement of people and goods across the country.
The government also plans to revamp its shipbuilding financial assistance policy, addressing cost disadvantages through credit incentives for shipbreaking in Indian yards to promote the circular economy. Large vessels above a specified size will be included in the infrastructure harmonized master list (HML), and shipbuilding clusters will be developed to expand ship categories and capacities. This initiative includes additional infrastructure facilities, workforce training, and technology development.
Second asset monetization plan set to launch
Building on the success of the Asset Monetization Plan announced in 2021, the government is set to launch a second phase for 2025-30, aiming to reinvest Rs 10 lakh crore into new projects. Regulatory and fiscal measures will be refined to support this initiative. For the automotive industry, this could lead to the modernization of transportation infrastructure and the creation of new industrial hubs, fostering a more efficient manufacturing ecosystem.