Centre likely to raise FY26 capex loan outlay after mid-year review

Mint

23-07-2025

New Delhi: The Centre is considering a higher allocation for FY26 under its 50-year interest-free capital expenditure loan for states, the Special Assistance to States for Capital Expenditure (SASCE) scheme, following a pickup in fund sanctions early in the current fiscal, two people familiar with the development said.
A final decision, along with the size of the increase, is expected after the mid-year review in September–October. The last revision had seen a hike of around 35%.
The SASCE scheme, launched in FY21 to stimulate post-pandemic recovery through state-led infrastructure investment, has become a key instrument for boosting public capital expenditure.
Allocations have remained unchanged over the last two years at ₹ 1.5 trillion for both FY25 and FY26, after being increased from ₹ 1.1 trillion in FY24.
However, the pace of utilization this year has been swift.
Over ₹ 50,000 crore, more than a third of the ₹ 1.5 trillion earmarked for FY25, is expected to be sanctioned in the first four months of the fiscal (April–July 2025), reflecting strong state-level appetite and faster project rollouts, the people mentioned above said.
'The pace of early sanctions and disbursals under SASCE this year has been strong, prompting a rethink on the allocation. A final decision is likely during the mid-year review,' said the first person mentioned above, requesting anonymity.
While many states typically backload their SASCE borrowings toward the latter half of the year, a concerted push to front-load Capex and drive early momentum has resulted in faster uptake this year, added the person mentioned above.
To be sure, Finance Minister Nirmala Sitharaman has urged states to make full use of the Centre's special assistance to states for capital expenditure (SASCE) scheme to drive economic growth by investing in employment-generating infrastructure and local development.
Speaking at a public event in Shillong a fortnight ago, Sitharaman said the SASCE funds come interest-free, with repayment due only after 50 years, and even that could be waived.
'The focus is on creating long-term public assets, not short-term handouts,' she added.
Meanwhile, allocations under the scheme were initially ramped up to ₹ 1.5 trillion each for FY25 and FY26, from ₹ 1.1 trillion in FY24.
However, the FY25 outlay was later revised down to ₹ 1.25 trillion, following slower-than-expected spending in the first half of the year, largely attributed to the election cycle.
"With most elections completed and several project pipelines in place, states are moving quickly to tap available funds,' said the second person mentioned above, who also spoke under anonymity.
'If this momentum holds through the second quarter, a significant bump in the FY26 allocation could be seen," the person added.
A finance ministry spokesperson did not respond to emailed queries.
For FY26, a portion of the ₹ 1.5 trillion earmarked under the SASCE scheme has been tied to governance and reform-linked conditions.
These include building on staff strength at the municipal level, implementing integrated property tax platforms, and advancing urban land and planning reforms.
States are also expected to demonstrate growth in their own capital expenditure and undertake specified urban and rural infrastructure projects.
In previous years, reform milestones included overhauling urban planning frameworks, strengthening municipal finances, expanding housing for police personnel, scrapping old government vehicles, and setting up digital libraries at the panchayat and ward levels for children and young adults.
Loans under the SASCE scheme, first introduced in FY21, have played a vital role in stimulating capital spending by states and catalyzing the economy since the pandemic.
As things stand, states account for 20–25% of India's total infrastructure spending, a critical priority for the government.