The Centre will release around Rs 90,000 crore as interest-free capex loans to the state governments during the first quarter of the current financial year, to help sustain economic activity amid headwinds arising from the West Asia conflict, according to official soures.
This amounts to a front-loading of the special facility to drive productive investments by states, as in the first quarter itself 45% of the budgeted outlay of Rs 2 lakh crore will be disbursed.
The Scheme for Special Assistance to States for Capital Investment (SASCI) has expanded significantly since its launch during the Covid-19 pandemic, with an outlay of Rs 12,000 crore in 2020–21. Over the years, it has evolved into a key policy instrument to spur public investment and incentivise reforms, with allocations rising to Rs 1.5 lakh crore in both FY25 and FY26. For the first time, states fully utilised the FY26 allocation, with more than 9,000 projects across the country benefiting from the scheme.
‘Entire outlay was utilised by states in FY26’
“The entire outlay was utilised by states in FY26. With states now better prepared to meet the conditionalities, we expect releases to states to be around Rs 90,000 crore in Q1FY27,” a senior official told FE. A large part of this will comprise the first instalment — amounting to 66% — under the untied component of the scheme, along with allocations linked to capex performance, a special window for hill states, and funding support for critical centrally sponsored schemes.
For context, capex loan releases were in the range of Rs 40,000 crore during April-August of FY26.
So far in FY27, the Centre has already released around Rs 20,000 crore to states. Another Rs 70,000 crore is expected to be released by the end of June after due diligence and fulfilment of basic conditionalities, sources said.
Under SASCI for FY27, Rs 75,000 crore has been earmarked under the untied component. Of this, 66% will be released as the first instalment, while the remaining amount will be disbursed after states utilise 75% of the initial tranche.
In addition, Rs 25,000 crore has been allocated based on states’ own capex performance. Around 50% of this amount will be awarded to states and Union Territories that achieve more than 10% growth in capital expenditure in 2025–26 over the previous fiscal year.
The Centre has released nearly 66% of the Rs 25,000 crore earmarked as Special Development Assistance for hill states. These states face unique financial and developmental challenges due to difficult terrain, poor connectivity, low population density, and limited revenue-generating capacity, making them more dependent on central assistance. Hill states also tend to have weaker fiscal indicators, including high debt-to-GSDP ratios, a relatively low own tax revenue base, and greater dependence on central transfers.
The Centre has also earmarked Rs 10,000 crore to fund the state or Union Territory share in central infrastructure projects, including railway, metro rail, highway, power, and airport projects, as well as infrastructure-oriented centrally sponsored schemes such as AMRUT, PMGSY, and the Jal Jeevan Mission.