The Uttar Pradesh government’s decision to waive farm loans has resulted in a sharp decline in capital expenditure, according to a State Bank of India report. In the state’s annual Budget, capital expenditure has been reduced by almost 59% across the board. This is likely to hurt the state’s growth trajectory, the report said. Capital expenditure is the money put in to develop fixed assets such as land, buildings and equipment.

The Adityanath government in Uttar Pradesh had presented its maiden Budget on July 11 and allocated Rs 36,000 crore to fund the farm loan waivers.

The report, ‘Ecowrap: A long road to Uttam Pradesh’, states that the declining capital expenditure will hamper an “infrastructure-deficient state like UP”. The report instead suggests building long-term productive assets through capital expenditure. It also said that loan waivers alone will not help in the long term if the government reduces capital expenditure on agriculture and irrigation.

Uttar Pradesh is no longer eligible to borrow from the market in this financial year. However, the SBI report terms it a positive fallout as it allays fears of the state’s borrowings increasing.