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Informist, Wednesday, Jun. 25, 2025

 

By Priyasmita Dutta

 

NEW DELHI – The Centre has released INR 100 billion to states so far in 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 Wednesday. In the Budget for FY26, the government has earmarked INR 1.50 trillion for the flagship scheme. 

 

The official said that disbursement so far this year has been gradual – in line with the trend seen in the previous years – but from July onwards, as states get used to the new and revised conditions for the funds, the pace will "definitely" pick up. "First quarter is usually low, but from next month the demand will be much higher as states manage to get smoother clearances," the official told Informist. 

 

So far this year, the Centre has approved loans worth INR 150 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. The majority of the funds released so far is from the "untied" portion of the scheme, the official added.

 

The finance ministry has issued guidelines for the release of INR 1.40 trillion of the total INR 1.50 trillion of the 50-year interest-free loans to states and Union territories. Of these, loans worth INR 570 billion, or 38%, will be "untied". Of the "tied" or conditional part, the government has issued modalities for the release of INR 830 billion, Informist had reported in April. The conditions for the remaining INR 100 billion will be shared either next week or in July, the official said. "Consultations are still on," the official said. 

 

Typically, the interest-free loans to states for capital investment have 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" portion 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 (Single Nodal Agency) SPARSH by Mar. 31, 2025, according to a document seen by Informist.

 

Within the INR 830 billion allocation for "tied" part of the scheme, INR 150 billion will be available to states that achieve 10% on-year growth in own 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 the achievement of a state's own capital expenditure.

 

The Centre has kept another INR 130 billion for states' governance reforms, finance reforms and urban planning reforms. Under governance reforms, states will have to build municipal cadres and digital interventions for improved governance. Under finance reforms, states will have to integrate property tax portal with unique identification document and diversify revenue sources and under urban planning reforms, states will have to undertake host of development projects under specific sectors, according to the document shared with states.   

 

First launched in the Budget for FY22, the scheme for special assistance to states to carry out capital investment is in line with the Narendra Modi government's thrust on capital expenditure to drive economic growth. In the past five years, the government has increased the Centre's 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 Deepshikha Bhardwaj

 

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