MC EXCLUSIVE States’ capex loans to be tied to 'new reforms' in FY27; Centre releases Rs 69,000 crore for FY26

For FY27, the SASCI allocation has been raised to Rs 2 lakh crore.

• Centre may add reforms to tied part of 50-year capex-free loan for states
• Urban Challenge Fund may be part of tied component, awaiting Cabinet approval
• FY27 SASCI outlay increased to Rs 2 lakh crore, Rs 1.2 lakh crore for tied reforms

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The Centre may set new reform milestones for states under the “tied” component of its 50-year interest-free capex loan scheme, a senior official aware of the matter told Moneycontrol.

The outlay under the “tied component” could be Rs 1.2 lakh crore -- of the total Rs 2 lakh crore outlay -- for FY27, the official said.

"The existing reforms measures are largely likely to stay, but some new ones could be added (in tied part). The ministry of housing and urban affairs is working on 'Urban Challenge Fund'. This segment could be added in the tied component of the capex-loan scheme," the official said.

Finance minister Nirmala Sitharaman announced the Urban Challenge Fund in her budget speech last year. The fund with a corpus of Rs 1 lakh crore will be set up to implement the proposals for “cities as growth hubs”, “creative redevelopment of cities” and water and sanitation. The fund awaits cabinet nod.

The 50-year interest-free loans to states are provided under the Special Assistance for Capital Investment Scheme (SASCI). Loans are offered through two channels — the so-called untied funds for priority state projects and “tied funds” conditional upon specific reforms.

Through the tied component, the finance ministry has, in recent years, pushed states to modernise building codes, digitise land records, scrap old government vehicles and implement financial management reforms.

SASCI in FY26 so far

The entire "untied" outlay of loan scheme, about Rs 69,000 crore, has been released to states this fiscal, the official said.

The tied outlay – around Rs 80,000 crore — will be released the moment the states submit the progress details of reforms measures they have taken, the official said.

The Budget pegged SASCI allocation at Rs 1.5 lakh crore for FY26, similar to previous fiscal year. In FY25, the Centre had disbursed Rs 149,484 crore to states. For FY27, the allocation has been raised to Rs 2 lakh crore.

"States have to submit the reforms undertaken to the central government – the concerned line ministries. Once the ministries review the progress, the funds from department of expenditure will be released to the states," the official said.

States often fail to submit progress reports on time and that is why they get delayed funds, another official said.

For FY26, under the reform component, about Rs 52,000 crore is earmarked for governance, land, agriculture, urban planning, ease-of-doing business, and financial management.

Moneycontrol has reported that the Centre has released about Rs 61,000 crore to states till December 15 in FY26 under its SASCI scheme.