State Capex Loans Get Fiscal Discipline Push In FY27

The Centre has added a fiscal-discipline filter to part of its state capex loan window, while retaining the larger 50-year interest-free support framework.

The Union government has changed the design of its Special Assistance to States for Capital Investment, or SASCI, for FY27. A part of the scheme is now linked to fiscal discipline, a first in this loan window. 

The move was communicated to states through a Department of Expenditure letter dated 2 April 2026, as reported by The Economic Times on 7 April 2026. Under SASCI, states continue to get 50-year interest-free loans for capital expenditure, but the Centre is now using a slice of the allocation to reward cleaner fiscal reporting and tighter debt management.

How The FY27 Scheme Has Been Reworked?

The total FY27 outlay under SASCI stands at ₹2 lakh crore, up from ₹1.5 lakh crore in FY26, according to a Rajya Sabha reply answered on 3 February 2026. Out of the FY27 allocation, modalities have been finalised for ₹1.75 lakh crore. The Economic Times reported that ₹75,000 crore will be untied, ₹25,000 crore is reserved for 9 hill states, ₹25,000 crore is linked to capex targets, and ₹3,000 crore has been set aside as a fiscal-discipline incentive for the current year.
 

Before that, the Centre has also built in release conditions. ET said 66% of the untied amount will be released upfront, while the remaining 34% will be released only after 75% utilisation. Another ₹5,000 crore within the untied window is meant for digital infrastructure, tourist spots, working women hostels, unity malls and libraries.
 

The wider backdrop is also clear. In a PIB release posted on 1 February 2026, Finance Minister Nirmala Sitharamansaid the Centre’s fiscal deficit is estimated at 4.3% of GDP in BE 2026-27, after 4.4% in RE 2025-26, while the debt-to-GDP ratio is projected at 50±1% by 2030-31.

Previous Developments Behind The Shift

SASCI has grown quickly since its launch. A LoansJagat report published on 21 August 2025 said the scheme started in FY21 with ₹12,000 crore, expanded to ₹1.49 lakh crore by FY25, and capex loan disbursals had crossed ₹40,000 crore. That report also noted the FY26 Budget allocation at ₹1.5 lakh crore.

A Lok Sabha reply uploaded on 11 February 2026 said SASCI loans are over and above the state borrowing ceiling. Separately, the Finance Ministry’s year-ender release dated 8 January 2026 said the normal net borrowing ceiling for states in FY26 was fixed at 3% of GSDP, with an additional 0.5% of GSDP linked to power-sector performance.
 

That makes the FY27 tweak less abrupt than it appears. The Centre has been moving from broad capex support to conditional support for some time.

Statements By Stakeholders
 

Sitharaman said on 1 February 2026 that the government has delivered on fiscal commitments without compromising on social needs. ET also quoted a senior official saying the ₹3,000 crore fiscal-discipline incentive has been kept for the current fiscal and may be increased later.

Conclusion

The scheme still gives states cheap long-term capex money. But a part of that support is now tied to fiscal behaviour, not just project spending.