State capex hits 2.7% of GDP under SASCI scheme: Report

A State Bank of India (SBI) Research report released in April 2026 found that state capital expenditure has risen to 2.7% of GDP in FY2024–25, up from 2.2% o...

What Happened

A State Bank of India (SBI) Research report released in April 2026 found that state capital expenditure has risen to 2.7% of GDP in FY2024–25, up from 2.2% of GDP in FY2021–22, largely due to the central government's Scheme for Special Assistance to States for Capital Investment (SASCI).
The scheme has disbursed approximately ₹4.5 lakh crore (₹4.5 trillion) to states over five years since its launch in 2020.
While the aggregate capex figures are encouraging, the SBI report flagged widening state-wise disparities in fund utilisation — suggesting that execution capacity, not financial support, is now the binding constraint in many states.
The report also noted that the scheme's fiscal multiplier effect (estimated at ₹3 in GDP output for every ₹1 spent on capital expenditure) depends critically on states mobilising matching own-source revenues and private investment.

Static Topic Bridges

SASCI — Scheme for Special Assistance to States for Capital Investment

SASCI was launched in October 2020 by the Ministry of Finance as an emergency fiscal tool during the COVID-19 pandemic, when states faced revenue collapse and reduced borrowing headroom. It provides 50-year interest-free loans exclusively for capital expenditure, with no repayment obligation in the initial years.

Launched: October 2020 (FY 2020–21)
Administering ministry: Department of Expenditure, Ministry of Finance
Nature of support: 50-year interest-free loans (effectively long-term grants in economic substance)
Funds are divided into two components:
Untied funds: Allocated without conditions; states can deploy for any capital expenditure project
Tied/reform-linked funds: Released against compliance with specific reform milestones in areas such as urban planning, digitisation of land records, agricultural marketing reforms, mining regulation, and property tax improvements
Scheme size grew from ₹12,000 crore in FY2020–21 to ₹1,50,000 crore in FY2024–25
FY2026–27 allocation: ₹2 lakh crore (₹2 trillion), of which ₹75,000 crore is untied
Total disbursed (2020–2025): Approximately ₹4.5 lakh crore

Connection to this news: SASCI is the primary driver behind the 0.5 percentage point increase in state capex as a share of GDP between FY22 and FY25 — a significant structural shift in subnational fiscal behaviour.

Capital Expenditure vs. Revenue Expenditure — Fiscal Policy Significance

Government expenditure is broadly classified as capital expenditure (capex) or revenue expenditure. This distinction is central to public finance and long-run economic growth.

Capital expenditure: Spending that creates durable assets or reduces future liabilities — roads, bridges, ports, hospitals, schools, irrigation. It has a higher fiscal multiplier than revenue spending.
Revenue expenditure: Spending on current operations — salaries, subsidies, interest payments. Necessary for governance but does not directly build productive capacity.
India's fiscal consolidation challenge: Revenue expenditure (especially subsidies and interest payments) tends to crowd out capex when fiscal space is limited.
FRBM Act, 2003 (Fiscal Responsibility and Budget Management Act): Requires the central government and states to reduce fiscal deficits; states must comply with limits under Article 293 of the Constitution to borrow.
Fiscal multiplier for public capex: Estimated at approximately 2.5–3x in the Indian context, meaning ₹1 of government capital spending generates ₹2.5–3 in GDP output over several years.
The Economic Survey 2025–26 noted that SASCI helped keep overall state capex at around 2.4% of GDP — a historically high level.

Connection to this news: The report underlines that sustained capex requires states to build their own execution capacity; dependence on interest-free central loans is not a permanent fiscal strategy.

Fiscal Federalism in India

Fiscal federalism refers to the financial relationships between levels of government — the division of revenue and expenditure responsibilities between the Union and the states.

Constitutional basis: Articles 268–293 (Part XII — Finance, Property, Contracts and Suits)
Finance Commission (Article 280): A constitutional body constituted every five years to recommend the share of central tax revenues to be devolved to states; 16th Finance Commission is currently constituted (2024–2029)
Vertical devolution: The 15th Finance Commission recommended 41% of central taxes be devolved to states
Horizontal distribution: Among states, based on criteria including population, area, income distance, and demographic performance
States have significant infrastructure responsibilities: roads, irrigation, health facilities, schools — making their capital expenditure critical to national growth
Borrowing limits: Under Article 293, states require central government consent to borrow if they have outstanding loans to the Centre; fiscal deficit of states is capped (typically 3% of state GDP under FRBM norms)

Connection to this news: SASCI is a tool of cooperative fiscal federalism — the Centre is supplementing state capital spending through interest-free loans tied to reforms, rather than through grants-in-aid or tax devolution, thereby retaining an incentive structure for governance improvement.

State Capex Disparities and Execution Capacity

The SBI report's finding of widening state-wise gaps in SASCI utilisation points to a structural divide between high-capacity states (typically larger, better-governed states) and low-capacity states that struggle to absorb funds even when they are available.

States with high absorption: Uttar Pradesh, Rajasthan, Madhya Pradesh, and others with large infrastructure pipelines
Low-absorption problem: Caused by delayed project DPR preparation, land acquisition bottlenecks, procurement delays, and limited engineering/administrative capacity at the district level
The tied component of SASCI requires reform compliance — states that have not completed prerequisites (e.g., land record digitisation) cannot unlock those funds
SBI Research noted that "execution capacity divergence" is now a bigger risk than financial resource availability for state capex

Connection to this news: The aggregate figure of 2.7% of GDP masks significant sub-national variation; translating the scheme's fiscal incentive into actual infrastructure creation remains the policy challenge.

Key Facts & Data

State capex as % of GDP: 2.2% (FY22) → 2.7% (FY25 RE) — increase of 0.5 percentage points
Total SASCI disbursement (2020–2025): ~₹4.5 lakh crore (₹4.5 trillion)
SASCI scheme launched: October 2020
SASCI FY2026–27 allocation: ₹2 lakh crore (₹2 trillion); untied component: ₹75,000 crore
Loan tenure: 50 years, interest-free
Fiscal multiplier for capex (India): ~₹3 in GDP per ₹1 spent
SASCI scheme size growth: ₹12,000 crore (FY21) → ₹1,50,000 crore (FY25)
Finance Commission (constitutional basis): Article 280
15th Finance Commission's vertical devolution: 41% of central taxes to states
FRBM Act: 2003; state fiscal deficit cap: generally 3% of state GDP
Source of findings: SBI Research report, April 2026