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Informist, Saturday, Oct. 3, 2026

 

By Priyasmita Dutta 

 

NEW DELHI – The Centre has released around INR 510 billion to states in the first six months of 2026-27 (Apr-Mar) as part of the Scheme for Special Assistance to States for Capital Investment in the form of 50-year interest-free loans, a senior finance ministry official said Saturday. In the Budget for FY27, the government had earmarked INR 2.0 trillion for the flagship scheme. 

The official said payout to states under the scheme has been slightly slower than usual during Aug-Sept after releasing an upfront amount of INR 445 billion till July. "The spending will pick up pace in H2 (Oct-Mar), so more funds will be released hereon," the official told Informist. The government has already sanctioned loans worth INR 670 billion, the official said, adding that the Centre is confident that states will absorb the entire INR 2 trillion allocated for FY27. 

In the corresponding period a year ago, the Centre had released INR 500 billion to states as loans for capex, one-third of last year's target of INR 1.5 trillion. This year, the government has released 26%. 

The scheme to provide special assistance to states for capital investment has multiple parts, with the majority of it being untied or simply based on the 16th Finance Commission's recommendation for states' share in central taxes, while some parts are conditional on the fulfilment of reforms and infrastructure development. Since FY25, the Centre has been cutting down the share of the untied portion of loans, and for FY27, this has been brought down to 37.5% from 42% in FY25 and 40% in FY26.

Funds under the untied portion of the scheme will be disbursed in two tranches, and the first tranche has already been disbursed, the official said. The majority of the INR 510 billion given so far is under the untied part, the official said.

 

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. The Modi government has increased capital expenditure by over six times since FY15. This INR-2-trillion allocation to states as loans is part of the government's total capital expenditure target of INR 12.21 trillion for FY27, up 11.5% from the revised estimate of INR 10.96 trillion for FY26.

 

Within the tied or conditional part of the loan, the Centre has allocated INR 250 billion towards incentivising states to achieve targets for capital expenditure. For the first time, the Centre has also allocated INR 250 billion for the special development of hilly states, citing constraints on their financial conditions and unique demographical challenges. This is also the first time the Centre has introduced a criterion that addresses the issue of fiscal discipline of states, a long-standing pain point for the Centre.  End

 

Edited by Deepshikha Bhardwaj

 

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