The Centre will likely continue its no-interest-bearing 50-year capital expenditure loans, which were introduced during the Covid pandemic in FY21, to states in the coming years to give the economy a boost, a top government source told FE.
Under the Scheme for Special Assistance to States for Capital Investment (SASCI), the Centre has budgeted Rs 1.5 lakh crore for states for various tied and untied projects in FY26, taking the cumulative support to Rs 5.12 lakh crore since FY21.
Five years, yes, and eight lakh crores, approximately, have gone to the states. So which is not returnable in 50 years, which is which bears no interest.
“As we go forward, as things stand, the interest-free capex loans will continue,” the source said.
Evolution of SASCI and Capex Push
The Scheme for Special Assistance to States for Capital Investment (SASCI) has evolved from an initial Rs 12,000 crore in 2020-21 (during Covid-19) to Rs 1,50,000 crore in 2024-25, making the SASCI into a policy lever that incentivises critical reforms across states. Of the Rs 1,49,484 crore capex loans released to the states in FY25, half of that was for reforms or project linked as outlined in the scheme.
In the absence of a broad-based private capex revival post-COVID, the Centre has put thrust on capex-led growth revival, which has given it good dividends. For FY26, the Centre has budgeted Rs 11.2 lakh crore capex, including Rs 1.5 lakh crore capex loans to states.
The Centre has linked two-thirds of capex loans earmarked for FY26 to governance reforms, including building municipal cadres, finance reforms, such as an integrated property tax portal, and urban land and planning reforms. Other conditions include achieving own capex growth and undertaking certain urban and rural infrastructure projects.
The Rs 1.5 lakh crore target for FY26 would also be met, officials said, adding that the states are now well prepared to take advantage of the scheme.
New Incentives for FY26
Even though the capex support scheme of the Centre has been running for six years in a row, the Centre, for the first time, allocated Rs 6,000 crore in FY26 as an incentive to states for digital public infrastructure for agriculture, including farmers’ registry and digital crop survey. The states would have to adopt digital systems for the development and maintenance of the state’s farmers’ registry to the state’s land record system, and to digitise and standardise the crop enumeration process using the digital crop survey programme.
To encourage efficiency in financial management, an amount of Rs 6,000 crore has been allocated to incentivise the states for onboarding 29 centrally sponsored schemes in the SNA SPARSH platform for the ‘just-in-time’ release of funds mechanism to curb the floating of funds. The states would also be required to operationalise the Aadhar-based direct benefit transfer (DBT) payment mechanism with the RBI and NPCI under all DBT schemes.