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Interest-Free Capex Loans to States
Context: In a significant move to sustain India’s economic momentum, the Centre will continue its no-interest-bearing, 50-year capital expenditure (capex) loan scheme to states in the coming years.
What is the Scheme for Special Assistance to States for Capital Investment (SASCI)?
The Scheme for Special Assistance to States for Capital Investment (SASCI) is a central government initiative designed to provide long-term, interest-free loans to state governments for financing their capital expenditures.
- Origin: Launched in FY21 (2020-21) as a pandemic-response measure to boost public investment and stimulate the economy.
- Financial Terms: The loans are interest-free and have a 50-year tenure, making them effectively a long-term grant-like support with a nominal repayment obligation far in the future.
- Objective: To enhance the capital investment capacity of states, create infrastructure assets, and generate employment.
- Structure: The scheme has both “tied” and “untied” components.
- Untied Loans: A portion of the funds is provided without pre-conditions, allowing states flexibility in spending on their priority capital projects.
- Tied/Reform-Linked Loans: A significant part of the allocation is linked to the implementation of specific critical reforms by the states. For FY26, two-thirds of the loans are conditional on states undertaking governance, urban, and financial reforms.
What is its significance?
- Catalyst for Economic Recovery: In the post-COVID era, it has been the primary engine driving economic growth. It has created a multiplier effect, boosting demand in core sectors like cement and steel and generating employment.
- Instrument of Fiscal Federalism: Instead of a top-down approach, it incentivises states to perform and reform.
- Driver of Structural Reforms: SASCI has been strategically used to nudge states into undertaking often-politically-difficult but essential reforms. Conditions have been linked to areas like: National Monetisation Pipeline, Ease of Doing Business and Power Sector Reforms.
- Urban Local Body Reforms: For FY26, reforms include building municipal cadres, creating an integrated property tax portal, and urban land planning reforms.
- Enhancing State Capex: By providing interest-free financing, the scheme alleviates the debt-servicing burden on state finances, allowing them to maintain higher levels of productive capital spending without straining their fiscal deficits.
What are the new Incentives for Digital Infrastructure?
For FY26, the government has introduced two new significant incentives worth ₹6,000 crore each, focusing on building digital public infrastructure (DPI) and improving financial efficiency.
- Incentive for Digital Agriculture (₹6,000 crore): To qualify, states must:
- Develop and maintain a comprehensive farmers’ registry integrated with the state’s land record system.
- Digitise and standardise the crop enumeration process using the Digital Crop Survey programme.
- Incentive for Efficient Fund Management (₹6,000 crore): To qualify, states must:
- Onboard 29 Centrally Sponsored Schemes (CSS) onto the SNA-SPARSH platform to enable ‘just-in-time’ release of funds and curb the idle floating of funds.
- Operationalise an Aadhaar-based Direct Benefit Transfer (DBT) payment mechanism with the RBI and NPCI for all DBT schemes.
