Centre Disburses ₹30,000 Crore in Interest‑Free Capex Loans to States; Pace Picked Up Sharply

India’s Union Government has accelerated interest‑free capital expenditure (capex) loan disbursements to states, with total releases more than doubling year‑on‑year to reach about ₹30,000 crore already in FY26, according to senior government sources.

As of last week, sanctions under the 50‑year interest‑free Scheme for Special Assistance to States for Capital Investment (SASCI) stood at around ₹40,000 crore, against a full-year target of ₹1.5 lakh crore for FY26. The Centre expects cumulative disbursals to rise to roughly ₹75,000 crore by September.

Conditionality and Reform-Linked Releases

To date, the government has established guidelines covering ₹1.39 lakh crore worth of capex loans, leaving ₹11,000 crore still awaiting norms. These remaining funds are expected to be disbursed once states meet specified ease‑of‑doing‑business conditions.

Two‑thirds of the capex loans earmarked for FY26 are conditional on states meeting governance and financial reforms. Eligible reforms include:

• Institutional reforms such as the establishment of municipal cadres
   
• Finance reforms, including integrated property tax portals
   
• Urban land and planning reforms
   
• Own capital expenditure growth
   
• Execution of specified rural and urban infrastructure projects.

Evolution of SASCI and Key Incentives

Initially launched in FY21 with an allocation of ₹12,000 crore as a COVID‑era stimulus, SASCI has since transformed into a strategic instrument tying financial flows to reform implementation. 

In FY25, nearly ₹1.49 lakh crore was released under the scheme, half of which was contingent upon reforms or project milestones.

For FY26, the Centre has for the first time introduced distinct reform-linked incentives:

• ₹6,000 crore to encourage states to build digital public infrastructure for agriculture, including farmers’ registries and state-level crop survey digitisation
   
• Another ₹6,000 crore for the adoption of just‑in‑time fund release mechanisms via the SNA SPARSH platform, including integration of Aadhaar-based DBT with RBI and NPCI for centrally sponsored scheme payouts.

States Positioned for Success

Government officials expressed confidence that states are now better prepared to absorb and utilise the capex funds effectively, heightening chances of meeting the ₹1.5 lakh crore disbursement target over the fiscal year.

Why It Matters

The Centre’s decision to accelerate capex loan disbursals and link a larger portion of the funds to reform implementation reflects a shift towards results-driven governance. Here's why this development holds significant importance:

• Accelerated delivery: States are receiving support much earlier in the fiscal year, boosting momentum for critical infrastructure and reform outcomes.
   
• Reform-linked funding: Financial incentives are now clearly tied to measurable governance and system upgrades.
   
• Macro‑fiscal boost: Enhanced capital deployment at state levels could catalyse broader economic growth and improve public service delivery.

Together, these shifts point to a more strategic and performance-based approach to federal support, fostering both economic and institutional development across states.

What to Watch

As the year progresses, a few key developments will determine the success of the revamped SASCI initiative. Stakeholders should keep a close eye on the following:

• Whether the Centre unveils the final norms and metrics for the remaining ₹11,000 crore allocation in the near term, which will impact how quickly states can access the full support.
   
• Which states emerge as frontrunners in meeting reform-linked criteria, and how efficiently they deploy the funds, a crucial indicator of the scheme’s effectiveness.
   
• Sectoral shifts in capex allocations under the new scheme, particularly in urban governance, agriculture, and digital infrastructure, revealing the government’s evolving priorities and investment focus.

The road ahead will test the implementation capacity of states and the Centre’s ability to maintain reform momentum while ensuring timely fund deployment.
 

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