Key Reforms Needed for Capex Loans: Focus on Land and Urban Planning
Centre Links Rs 52,000 Crore in 50-Year Interest-Free Capex Loans to Essential State Reforms
The Indian government has committed Rs 52,000 crore in interest-free capital expenditure loans, spanning 50 years, to support significant reforms in areas such as land management, urban development, digital agricultural infrastructure, and financial efficiency. This funding is part of the larger Rs 1.5 lakh crore allocation for FY26. The initiative aims to motivate states to enhance governance, facilitate the Direct Benefit Transfer (DBT) rollout, and undergo land digitisation initiatives.
Conditions for Accessing the Interest-Free Loans
To qualify for these 50-year interest-free loans, states must comply with various conditions centered around advancements in digital public infrastructure for agriculture, financial management improvements, urban planning, and reforms related to land use. A total of Rs 52,000 crore is set aside for distribution to states meeting these criteria, within the broader FY26 capex loan package valued at Rs 1.5 lakh crore. This is in addition to established guidelines related to Rs 87,000 crore in loans, which include Rs 57,000 crore for untied funds directed toward state priority projects and Rs 30,000 crore aimed at reform or project-specific initiatives.
Allocations for Governance Reforms and Other Improvements
As per the latest framework concerning the Rs 52,000 crore soft loans for states, Rs 13,000 crore has been designated for governance enhancements. This encompasses the establishment of municipal cadres and financial reforms, including the creation of an integrated property tax portal as well as urban land and planning improvements. These allocations are intended to incentivize the recruitment of new personnel to enhance service delivery, particularly for environmental engineers and hydrologists. Furthermore, states will receive incentives for any increase in municipal revenues from alternative sources such as advertising, parking, and rentals by 10%.
Focus on Digital Public Infrastructure and Financial Management
Despite the capex support scheme’s six-year endurance, this is the inaugural instance where the Centre has allotted Rs 6,000 crore to encourage states to develop digital public infrastructure for agriculture. This funding will aid initiatives like farmers’ registries and digital crop surveys. States are expected to implement digital systems to develop and maintain the farmers’ registry in tandem with the state’s land records system. They will also need to standardize the crop enumeration process through a digital crop survey program.
For improved financial management efficiency, Rs 6,000 crore has been allocated to incentivize states to incorporate 29 centrally sponsored schemes into the SNA SPARSH platform. This “just-in-time” fund release mechanism aims to minimize the problem of unutilized funds. In addition, states will be expected to implement Aadhar-based direct benefit transfer (DBT) payment systems in collaboration with the RBI and NPCI across all DBT programs.
Investment in Land Reforms and Ease of Doing Business
The government has also dedicated Rs 5,000 crore each for digitizing rural land records, implementing urban land reforms, and easing regulations for business operations in FY26. Land reforms remain a focal point for the Centre under this capex scheme, facilitating a conducive environment for both manufacturing and agriculture, thereby steering India toward becoming a developed nation. To support compliance reduction and improve the business environment, states are urged to adopt flexible mixed-use land development, digitize land use change procedures, rationalize industrial road width requirements, and amend building regulations to minimize land loss, among other measures.
The Evolution of the Capital Investment Assistance Scheme
The Scheme for Special Assistance to States for Capital Investment (SASCI) has expanded from an initial Rs 12,000 crore in the 2020-21 financial year (during the Covid-19 pandemic) to a remarkable Rs 1.5 lakh crore for 2024-25, transforming SASCI into a strategic tool that encourages vital reforms across states. In FY25, of the total Rs 1,49,484 crore allocated as capex loans to the states, half was tied to specific reform initiatives or projects outlined in the scheme.
