MC EXCLUSIVE FinMin earmarks Rs 13,000 crore under capex loan scheme to push states' governance and urban reforms

The Rs 13,000 crore package is part of the total outlay of Rs 1.5 lakh crore earmarked for the SASCI programme for FY26.

The finance ministry has earmarked Rs 13,000 crore for states and Union Territories in FY26 under its 50-year interest-free capex loan scheme to support significant governance, finance, and urban planning reforms, Moneycontrol has learnt.

Under the Scheme for Special Assistance to States for Capital Investment (SASCI), states/UTs are required to build municipal cadres and digital interventions for improved governance; integrate the property tax portal with a unique ID and diversify revenue sources; implement town planning and land pooling schemes; revitalise central business districts; and build theme-based greenfield cities across three categories of reforms, an official source said.

The Rs 13,000 crore package is part of the total Rs 1.5 lakh crore outlay earmarked for the SASCI programme in FY26, which is similar to the FY25 outlay that was almost fully utilised.

The programme

Launched in 2020-21, SASCI is a central government programme that provides state governments with 50-year interest-free loans to boost capital expenditure, thereby stimulating economic growth, creating employment opportunities, and enhancing infrastructure development across the country.

The 50-year interest-free loans to states are provided through two channels: untied funds for priority state projects, and tied funds conditional on implementing specific reforms. Through the tied component, the ministry has, in recent years, pushed states to modernise building codes, digitise land records, scrap old government vehicles, and implement financial management reforms.

The reform linked loans form over 50 percent of the total allocation, and the Rs 13,000-crore outlay for FY26 falls within the tied funds.

The finance ministry has asked states/UTs to hire more individuals for contractual posts, including engineers, and create a municipal staff framework for small towns (with a population of up to 1 lakh).

The ministry also wants states/UTs to carry out GIS-based utility mapping of water, sewerage and storm drainage networks, and of municipal assets and government lands. As per the scheme, cities with more than 1 million population would be eligible for claiming incentives post completion of this work, sources said.

The finance reforms

Under the finance reforms, the ministry is seeking integration of the property tax portal with a unique ID, as this would result in the creation of IDs for the left-out properties in urban areas, an increase in collection of property tax and stamp duty, and a transition to market valuation-based property tax assessment.

The ministry has also asked the states/UTs to diversify the municipal revenue through innovative use of urban planning tools, such as transferable development rights, land value capture, and generating revenue from commercial advertisements, parking, renting, etc.

Urban planning

Under the urban planning segment, the ministry is pushing for the creation of new urban centres with strong identifiable economic anchors to drive growth and employment, sources said. These greenfield cities should be planned on thematic concepts, such as tourism, knowledge & skill, logistics and manufacturing, research and innovation, IT/IT-ES, and heritage. They should entail key features such as modern civic amenities, essential social infrastructure, renewable energy infrastructure, etc.

The Ministry of Housing and Urban Affairs would select a maximum of 12 projects across the country in this component, and incentives from the SASCI will be provided based on progress by the Department of Expenditure.

On May 27, Moneycontrol had reported that the central government is nudging states and UTs to undertake comprehensive reforms related to compliance reduction and deregulation for Ease of Doing Business as well, and has earmarked Rs 5,000 crore for this purpose under the SASCI outlay for FY26.

In FY25, through the SASCI, 22 states carried out reforms in Building Byelaws for industrial and commercial plots, 18 reduced land wastage in setbacks and parking for standalone factories to less than 30 percent, and 12 states doubled the built-up area permitted for flatted factories. Further, 8 states increased the Floor Area Ratio for commercial buildings to 5 in normal areas and 7 in Central Business Districts.