Centre nudges states to sharpen capex focus under ₹2 lakh crore loan scheme

Seeking to improve the quality and impact of public infrastructure spending, the Centre has asked states and Union Territories to narrow their investment plans under its ₹2 trillion, 50-year interest-free capital expenditure loan scheme to a maximum of five priority sectors in 2026-27. The move marks a strategic shift from encouraging higher capital expenditure alone to ensuring that public investments are more focused, outcome-driven and capable of delivering measurable development gains.

The Department of Expenditure has conveyed to states that proposals under the revamped Special Assistance to States for Capital Investment (SASCI) scheme should concentrate on a limited number of sectors instead of spreading funds across numerous projects. Officials believe such an approach will help states complete key infrastructure projects faster, improve service delivery and avoid fragmentation of resources that often results in delays and cost overruns.

Unlike a centrally prescribed model, the Centre has left the choice of sectors to individual states. Governments will be free to identify up to five priority areas based on their own developmental requirements. This flexibility is expected to produce different investment patterns across the country. Northeastern states, for instance, may prioritise connectivity, logistics and tourism infrastructure, while states affected by Left Wing Extremism could focus on roads, healthcare and education. Water-stressed regions may channel resources into irrigation and drinking water projects, whereas urbanised states are likely to emphasise transport systems, sanitation and civic infrastructure.

The revised framework aligns with the Centre's broader objective of improving the efficiency of public capital expenditure as India pursues its long-term Viksit Bharat 2047 vision. Economists say the emphasis on concentrated spending could enhance the economic multiplier effect of infrastructure investments by ensuring that projects reach completion instead of remaining underfunded across multiple sectors. They argue that targeted investments are more likely to create visible improvements in public services and generate sustained economic activity than thinly spread allocations.

The SASCI scheme was introduced during the Covid-19 pandemic to support state-level capital expenditure through long-term, interest-free loans and has since evolved into one of the Centre's principal instruments for stimulating infrastructure investment. For FY27, ₹70,000 crore has been earmarked under the first component of the scheme, with allocations broadly based on the recommendations of the 16th Finance Commission. Uttar Pradesh has received the largest allocation, followed by Bihar, Madhya Pradesh, West Bengal, Maharashtra and Rajasthan.

The latest refinement reflects the government's growing emphasis on the quality rather than merely the quantity of public expenditure. By encouraging states to concentrate resources on a handful of strategic sectors, the Centre hopes to maximise the developmental impact of every rupee spent, strengthen infrastructure creation and accelerate inclusive economic growth while maintaining fiscal discipline.