States’ liabilities under Centre’s 50-year interest-free loan scheme to exceed ₹3.5 trillion by FY25-end
Summary
Introduced in 2020-21, the interest-free loan with a tenure of 50 years has played a vital role in stimulating capital spending by states and catalyzing the overall economy
New Delhi: The total outstanding liabilities of states under a special central government low-cost loan scheme is estimated to have exceeded ₹3.5 trillion by the end of FY25, two people familiar with the matter told Mint.
The Special Assistance to States for Capital Investment (SASCI) scheme is a 50-year, interest-free loan programme that the Centre uses to support capital expenditure by India’s states.
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The development follows the Centre’s push for higher state capital expenditure after economic growth slowed to 5.4% in the September quarter—the weakest pace in nearly two years—amid subdued government spending and declining consumption.
“The drive for capital investment has likely led to states accumulating over ₹3.5 trillion in interest-free liabilities under the Centre’s 50-year, interest-free capex loan scheme between FY21 and FY25," the first person mentioned above said on the condition of anonymity.
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“A significant share of this spending by states has been aimed at stimulating economic growth (through infra spending), following subdued consumption and lower public expenditure in the post-pandemic period and after the election-affected quarters of FY25," the person mentioned above said.
Introduced in 2020-21, the interest-free loan with a tenure of 50 years has played a vital role in stimulating capital spending by states and catalyzing the overall economy in the aftermath of the pandemic.
Official data available from the ministry of finance showed that between FY21 and January FY25, the total outstanding liabilities of states under the SASCI scheme stood at ₹3.28 trillion.
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The states with the highest liabilities under the centrally sponsored scheme were Uttar Pradesh ( ₹40,410 crore), Madhya Pradesh ( ₹32,995 crore), Bihar ( ₹30,882 crore), Rajasthan ( ₹22,680 crore), West Bengal ( ₹19,963 crore), Maharashtra ( ₹19,811 crore) and Andhra Pradesh ( ₹18,354 crore).
To be sure, finance minister Nirmala Sitharaman has significantly raised the allocation for interest-free loans to states to ₹1.5 trillion, in both the 2024–25 and 2025–26 Union budgets, up from ₹1.10 trillion disbursed in 2023-24.
However, the FY25 allocations were revised to ₹1.25 trillion in the latest budget, reflecting the slowdown in the first half of the year.
During the first eight months of FY25, the Centre released only ₹50,571.42 crore to states as proceeds under the interest-free capex loan scheme.
However, disbursements surged in the second half of FY25, compensating for election-related delays in the first half, and the Centre is on track to meet its expenditure target for the scheme, said the second person mentioned above, who also didn’t want to be named.
“It is seen as an effective tool for states to boost capital spending, thereby supporting growth. The momentum is expected to continue in FY26," the person added.
A finance ministry spokesperson didn't respond to emailed queries.
According to a recent report by CareEdge Ratings, formerly Care Ratings, states are unlikely to fully utilize the available capex loans under the Centre's 50-year interest-free terms in FY25 due to a slow start to the year as a result of the elections.
“It is crucial to closely monitor the actual capex by states, as they have historically struggled to fully utilize their budgeted capex allocations," the report said.
“Based on current trends, it is likely that states will underutilize the interest-free capex loan offered by the centre (during FY25)," it added.
