Budget 2026: The central government is considering a significant increase in long-term, interest-free loans to states in the Union Budget 2026-27 to accelerate
capital asset creation and reinforce economic growth. According to a person familiar with the early-stage discussions, cited by The Economic Times, the Centre may expand the allocation under the Special Assistance to States for Capital Investment (SASCI) scheme to Rs 1.8–2 lakh crore, up from Rs 1.5 lakh crore this fiscal. The government’s proposal is driven by the belief that capital expenditure by states tends to yield stronger economic outcomes. A senior official told The Economic Times that the multiplier effect of state-level capex is often higher than that of central government entities. This essentially means productive state spending generates greater economic dividends through job creation, construction activity, and long-term infrastructure expansion. Slow First-Half Offtake, But Surge Expected in Last Quarter Of the Rs 1.5 lakh crore allocated under the scheme for FY26, the Centre has disbursed Rs 56,826 crore as of November 27 toward 4,106 projects, according to data cited by The Economic Times.
Top Beneficiary States
The states drawing the highest amount of capex loans so far include:
- Uttar Pradesh – Rs 8,465 crore
- Assam – Rs 5,042 crore
- Rajasthan – Rs 4,113 crore
A substantial portion—roughly one-third—of the annual outlay is tied to reform-linked conditions. Untied loans are typically availed quickly, whereas tied funds see slower progress.
50-year interest-free loans introduced during COVID
The Centre launched the SASCI scheme in 2020-21 to support states’ capital expenditure at a time when the Covid-19 pandemic had severely weakened economic activity.
The initial corpus was Rs 11,830 crore, which has been expanded sharply over the years. The interest-free loans, with a long 50-year tenure, were designed to:
- help states execute infrastructure projects
- stabilise growth during a period of weak private investment
- improve long-term productive capacity of the economy
Finance Minister Sitharaman has previously said that every Re 1 spent on capex generates Rs 2.45 in economic output in the same year, and Rs 3.14 in subsequent years, underscoring the high multiplier impact.
A larger capex-support package for states in 2026-27 could strengthen infrastructure pipelines across transport, urban services, and energy, help states with constrained finances sustain investment momentum, complement the Centre’s own capex push in the upcoming fiscal and reinforce India’s medium-term growth trajectory amid global uncertainty.
Finance minister Nirmala Sitharaman is expected to present the 2026-27 Budget on February 1, although the official announcement is awaited.
