Centre Enhances United Capex Loans To States To Accelerate Public Investment

The Central Government has revised the distribution framework for its interest-free 50-year capital expenditure (capex) loans to states under the Scheme for Special Assistance to States for Capital Investment (SASCI), with an emphasis on increased untied funding and incentivised reforms.

Of the ₹1.5 lakh crore allocated for FY26, the Centre initially reserved ₹57,000 crore for untied projects identified by states, while it linked the remaining amount to specific reforms such as land use and urban planning.

Now, the Centre has expanded the untied portion under the revised policy, allowing high-performing states greater freedom to fund projects based on their own priorities.

So far, the Centre has disbursed ₹50,000 crore out of the sanctioned ₹75,000 crore for the current fiscal year as capex loans.

By increasing the untied allocation, the government aims to accelerate infrastructure development and empower states with more control over project planning.

Incentives for Compliance and Reforms

According to a letter from the Department of Expenditure, states can now receive an additional allocation—up to 100% of their original outlay for North Eastern and Hill States, and up to 50% for others—if they have fully utilised the first instalment of untied loans and accessed the second instalment.

This allocation will follow a First-Come-First-Served principle, subject to the availability of savings and fiscal space.

The new guidelines also tie eligibility for increased funding to compliance with the SNA SPARSH system, which tracks the return of unutilised central funds through the Public Financial Management System (PFMS).

States must prove return of unused funds in Single Nodal Agency accounts linked with all central schemes to be eligible for further allocation.

SNA SPARSH is a digital reform aimed at reducing idle funds by routing finances efficiently for all Centrally Sponsored Schemes (CSS).

From November, fund transfers will shift from state treasuries to the RBI platform, preventing fund float and containing borrowing.

Long-Term Strategy for Growth

Since its inception during the pandemic in FY21, SASCI has evolved into a major fiscal lever, expanding from ₹12,000 crore to ₹1.5 lakh crore in FY25.

Cumulatively, the scheme has disbursed ₹5.12 lakh crore to states, supporting both infrastructure and structural reforms.

Out of the ₹57,000 crore initially earmarked as untied funds for FY26, the Centre has already allocated ₹55,000 crore to states based on their share of central taxes, following the 15th Finance Commission’s recommendations.

It disburses the funds in two stages—66% after states meet mandatory conditions, and the remaining 34% once states utilise 75% of the first instalment and refund the central share under the SNA SPARSH system.

Looking ahead, the Centre plans to continue offering no-interest, long-term capex loans to drive economic revival and give states greater control over their development agendas.

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