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Informist, Tuesday, May 27, 2025

 

By Priyasmita Dutta

 

NEW DELHI – The Centre has released INR 70 billion to states for the first two months of 2025-26 (Apr-Mar) as part of the Scheme for Special Assistance to States for Capital Expenditure in the form of 50-year interest-free loans, a senior finance ministry official said Tuesday. In the Budget for FY26, the government has earmarked INR 1.50 trillion for the flagship scheme. 

 

The amount released so far was higher than the INR 65 billion released in the first three months of FY25, mainly because the disbursements to states last year were slow as the Model Code of Conduct was in force due to General Elections.

 

The official said that disbursement this year so far "has not taken off yet" and is expected to pick pace July-onwards as states get used to the new and revised conditions for the funds. "As we progress into the year, states will be better positioned to be eligible for the loans," the official told Informist.

 

In Apr-May this year, the Centre has approved loans worth INR 90 billion, the official said. The allocation for states' loans is part of the government's total capital expenditure target of INR 11.21 trillion for FY26. 

 

According to the official, majority part of the funds released so far is from the "untied" portion of the scheme.

 

 

The finance ministry has issued guidelines for the release of around 60% of the 50-year interest-free loans to states and Union territories with INR 570 billion, or 38%, "untied" portion. Of the "tied" or conditional part, the government has issued modalities for the release of INR 300 billion and the conditions for the remaining part will be shared later, Informist had reported in April.

 

 

Typically, the special assistance scheme to states for capital investment has multiple parts, with majority of it being untied or simply based on the 15th Finance Commission's recommendation for states' share in central taxes and the other parts conditional on fulfilment of reforms and infrastructure development. Since FY25, however, the finance ministry has cut down the "untied" allocation of the scheme.

 

Out of the INR 570 billion "untied" portion, the first instalment of 66% will 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 central share in state nodal agency account of all centrally sponsored schemes migrated to SNA SPARSH by Mar. 31, 2025, according to a document seen by Informist.

 

Within the INR 300 billion allocation for "tied" part of the scheme, INR 150 billion will be available to states who achieve 10% on-year growth in capital expenditure in FY25 and achieve a growth rate of over 10% year on year in Apr-Dec. In FY25, the Centre had kept INR 250 billion for achievement of a state's own capital expenditure.

 

First launched in the Budget for FY22, the scheme for special assistance to states to carry out capital investment in line with the Narendra Modi government's thrust on capital expenditure to drive economic growth. In the last five years, the government has increased capital expenditure by more than three times. In FY25, the government ended up releasing just short of INR 1.50 trillion to states for capex loans, much higher than the revised estimate of INR 1.25 trillion and close to the original target set by the government.  End

 

Edited by Akul Nishant Akhoury

 

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