UPSC Darpan

EconomyGS314 October 2026

States are slow to draw the ₹2 lakh crore of 50-year interest-free capex loans under SASCI

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The news

New Delhi. The Department of Expenditure (DoE) wrote to States in the first week of October asking them to speed up use of the Scheme for Special Assistance to States for Capital Investment (SASCI), The Economic Times reports. Several States have not drawn the money available or have not submitted utilisation certificates. As on October 1 the Centre had sanctioned ₹67,000 crore and released about ₹51,000 crore, roughly a quarter of the year’s ₹2 lakh crore; actual spending is lower still. Releases had reached ₹44,500 crore by July; an official spoke of “a slowdown after July”. The DoE is chasing certificates, speeding approvals and helping States find suitable projects, and expects them to absorb the full amount in the second half.

The chain in one line: Centre offers ₹2 lakh crore of interest-free loans → most of it tied to conditions and paperwork → States lack ready projects or file UCs late → releases slow after July → risk of a rushed, low-quality spend before March

Static syllabus linkage

  1. Article 293 gives the Centre a hand in State borrowing. Article 293(2) lets the Government of India lend to States. Under Article 293(3), a State that still owes the Centre money needs its consent to raise any loan, which is why the Centre sets each State’s borrowing ceiling.
  2. Two routes for central money. Under Article 280 the Finance Commission recommends how central taxes are shared with States; that money is untied. Article 282 allows grants for any public purpose, the basis for centrally designed schemes with conditions. SASCI is a loan, but it follows the scheme route.

Why UPSC loves this

  1. Do conditional central transfers strengthen State capex or weaken State autonomy?. GS3 lists “Government budgeting” and “infrastructure”; GS2 lists “issues and challenges pertaining to the federal structure”. Expect three dimensions: the capex multiplier, untied versus reform-linked money, and State capacity to spend well.

Prelims nuggets

  • SASCI, run by the Department of Expenditure, gives States 50-year interest-free loans for capital projects, outside their normal Net Borrowing Ceiling; it began in 2020-21 as Special Assistance to States for Capital Expenditure.
  • Under Article 293(3), a State with an outstanding loan from the Government of India needs the Centre’s consent to raise a fresh loan.
  • Article 282 allows the Union or a State to make grants for any public purpose, even outside its legislative competence.

Analysis

  1. States are slow less from lack of need than from the scheme’s conditions and paperwork. The guidelines release the untied part in two instalments, 66% and then 34% only after a State uses 75% of the first, closes old scheme accounts and returns unused central money; earlier releases need a consolidated UC. ET reports States that have neither drawn funds nor filed UCs. The other view is that conditions are the point: a loan for unready projects only parks money. True, but when 62.5% of the pot is conditional, a State slow on one reform loses capex money too.
  2. Lens — Centre and States: interest-free money buys the Centre a say over State priorities. Finance Commission devolution is untied: a State chooses canals or clinics. SASCI’s conditional parts reward central priorities instead — AgriStack (₹13,000 crore), mining reforms (₹5,000 crore), Right of Way rules (₹4,000 crore), per the 2026-27 guidelines. The strongest counter-view: these are national goals States have delayed for years, and no State is forced to join. That holds, but poorer States with thinner administrations may draw less of money meant for them.
  3. Lens — Short-term relief and long-term reform: what the money builds matters more than drawing it. A full-absorption target invites the “March rush”: hurried tenders, roads without drainage, hospital blocks without staff. ET’s figures show releases rose only about ₹6,500 crore between July and October, so most now falls due in the second half. Land and approvals cannot be compressed into months. The other view: delay also costs output. Either way, count working assets, not rupees released.

Possible Mains question

Interest-free capex loans to States are generous, yet States are slow to use them. Examine the reasons and their implications for fiscal federalism. (15 marks, 250 words)

Model approach

  1. Directive — Examine. Probe the causes and their meaning for Centre-State fiscal relations; end with a view.
  2. Introduction — cheap money, slow uptake. Sample: By October 1 the Centre had released only about ₹51,000 crore of the ₹2 lakh crore of interest-free SASCI loans for 2026-27, even though States need capex most.
  3. Body — conditions and paperwork, not cost, explain the delay. Two instalments, 75% use of the first, UCs, old accounts to close. Value addition: 62.5% of the outlay is conditional (2026-27 guidelines).
  4. Body — conditional loans shift choice from States to the Centre. Contrast untied Article 280 devolution with scheme money; note Article 293(3). Draw a flowchart: ₹2 lakh crore splitting into the untied ₹75,000 crore and conditional parts, each with its condition.
  5. Body — a second-half rush threatens asset quality. March rush, land delays, no maintenance budget; weaker States draw less.
  6. Conclusion — the Finance Department prepares, the DoE eases. Sample: Each State Finance Department must keep cleared projects ready from April, and the DoE must release untied money early, because capex is judged by assets that work.

Administrator's brainstorm

As a State Finance Secretary, you find in January that ₹X crore of SASCI money is undrawn with two months left. What do you do first?

Options: a tendering rush before March 31, giving up the money, or drawing only what ready projects can absorb. A tendering rush would show full use on paper but buy poor roads that the State repays for fifty years; giving up the money hurts waiting districts. I would first clear pending utilisation certificates, since they block every later release, then list projects with land, clearances and approved estimates, and claim only for those. The rest goes to next year’s shelf. The deciding principle is value for public money over the look of full absorption.