The Centre has tweaked guidelines to increase the untied capex loans to state governments, a move that will accelerate public investments.
Of the Rs 1.5 lakh crore interest-free 50-year capital expenditure loans earmarked for FY26, the Centre had allocated Rs 57,000 crore for untied projects identified by the states, while the rest were linked to reforms such as land and urban planning, and specified projects.
However, it has now decided to increase the untied portion of the loans, giving greater headroom to more efficient states in executing projects of their choice. So far this year, a sum of Rs 50,000 crore has been released to states as capex loans, out of the sanctioned Rs 75,000 crore, or half of the 2025-26 target.
Incentives linked to SNA SPARSH compliance
In a letter to the state chief secretaries a copy of which is seen by FE, the department of expenditure said “additional allocation of up to 100% of the original outlay (would be available) for North Eastern/Hill States and 50% of the original allocation for other states, which have utilised the first instalment under Part-I (united loans) and have availed the 2nd instalment.” This will be on a ‘First-Come-First-Served’ basis, subject to availability of savings under other parts of the scheme and availability of fiscal space,” it wrote.
While submitting the proposals for approval of the additional allocation, states are required to submit proof of return of unutilised central share in Single Nodal Agency (SNA) accounts of all state-linked schemes, whose RBI account has been opened and mapped on the SNA SPARSH module of PFMS (public finance management system) by the end of the preceding month of submission of the proposal.
The move is aimed at rewarding states for implementing SNA SPARSH, a mechanism aimed at preventing the idling of funds, to route funds for all centrally sponsored schemes (CSS).
SASCI continues to drive state reforms
From November, the Centre will use the Reserve Bank of India platform to transfer funds for the schemes instead of state treasuries and banks, to curb the floating of funds to rein in borrowings. Of the Rs 57,000 crore originally allocated untied funds to states and UTs, Rs 55,000 crore was allocated amongst states in proportion to their share of central taxes & duties as per the award of the 15 Finance Commission.
Under this category, the first instalment of 66% was to be released on meeting mandatory conditions, while the second instalment of 34% will be released after 75% of the fund utilisation from the first instalment and refund of the central share in the state nodal agency account of all centrally sponsored schemes migrated to SNA SPARSH by March 31, 2025.
The Centre will likely continue its no-interest-bearing long-term capex loans, which were introduced during the Covid pandemic in FY21, to states in the coming years to give the economy a boost, sources told FE.
Under the Scheme for Special Assistance to States for Capital Investment (SASCI), the Centre has cumulatively provided Rs 5.12 lakh crore since FY21.The SASCI has evolved from an initial Rs 12,000 crore in FY21 to Rs 1.5 lakh crore in FY25, making it a policy lever that incentivises critical reforms across states.