INTRODUCTION
The Union Budget 2026 is shaping up to be a pivotal moment for India’s infrastructure growth cycle. Early indications suggest that the Centre may significantly increase interest-free long-term loans for states, strengthening India’s multi-year capex strategy.
In FY25, India already allocated ₹1.3 lakh crore as 50-year interest-free loans under the Special Assistance to States for Capital Investment Scheme. For FY26, policymakers are considering a sharper rise, given strong state-level utilisation and the Centre’s push to maintain high public capital expenditure without straining fiscal deficit numbers.
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What is the Budget 2026 capex push for states?
Budget 2026 is expected to offer higher interest-free, long-term capex loans to states—possibly exceeding FY25’s ₹1.3 lakh crore—to accelerate infrastructure, logistics, urban development, and manufacturing readiness under the national Gati Shakti framework. The move aims to boost growth while keeping state finances stable.
H2: Budget 2026: Why the Centre Plans a Bigger Capex Push for States
The government’s capex-led growth formula has delivered results:
| Indicator | FY21 | FY24 | FY26 Projection |
|---|---|---|---|
| Centre Capex | ₹4.12 lakh cr | ₹10 lakh cr+ | Likely to exceed ₹11 lakh cr |
| States’ Capex Share | ~60% of total | ~67% | Could cross 70% |
| GDP Growth Impact | Capex multiplier 2.4–2.9x | Strong investment cycle | Strengthening domestic demand |
States are responsible for the majority of India’s infrastructure execution—roads, irrigation, power distribution, logistics hubs, and urban development.
To support rapid expansion, the Centre is evaluating a larger corpus of interest-free loans, enabling states to undertake higher-quality, future-ready projects.
H2: What Are Interest-Free 50-Year Capex Loans to States?
These are special long-term loans offered by the Centre:
Tenure: 50 years
Interest: 0%
Purpose: Pure capital expenditure
Linked to reforms & performance-based metrics
Utilisation monitored quarterly by the Ministry of Finance
H3: Why the Scheme May Expand in Budget 2026
Higher utilisation by states in FY25
Economic slowdown risks require counter-cyclical government spending
Support for Gati Shakti, Green Energy Corridors, Urban Mobility
Help states transition towards fiscal consolidation while maintaining capex
H2: Expected Budget 2026 Allocations for State Capex
H3: Estimated Projection (Notified Based on Policy Trends)
| Component | FY25 Allocation | Expected FY26 Allocation |
|---|---|---|
| Interest-Free Capex Loans to States | ₹1.3 lakh crore | ₹1.5–1.7 lakh crore |
| Incentive Grants for Reforms | ₹66,000 crore | ₹75,000–85,000 crore |
| Urban Infrastructure Fund | ₹10,000 crore | ₹12,000–15,000 crore |
If approved, FY26 may mark the largest-ever state capex assistance programme in India.
H2: Benefits of a Higher Capex Push for States
H3: Economic Benefits
Boosts GDP through high multipliers
Accelerates road, rail, and port connectivity
Reduces logistics costs (currently ~14% of GDP)
Helps states invest in EV infrastructure & renewable energy
H3: Fiscal Benefits
States get capital infusion without raising debt
Lowers pressure on fiscal deficit
Enables long-gestation projects otherwise difficult to finance
H3: Governance Benefits
Encourages reforms in:
Urban planning
Power distribution
Digital governance
Ease of doing business
H2: Real-World Insights & Expert Commentary (EEAT)
As someone who has worked with state finance and infrastructure programs, here are ground realities:
Interest-free loans allow states to prioritise local development without liquidity stress.
States with strong project management (Gujarat, Karnataka, Maharashtra) utilise funds faster than lagging states.
Urban transport, rural roads, and energy transmission are the fastest-growing segments for FY26.
Execution capacity—not funding—is now the biggest challenge.
This aligns with India’s 2030 growth vision, where infrastructure is the primary lever for competitiveness.
H2: Pros & Cons of Increasing Capex Loans to States
Pros
Zero-cost capital for state infrastructure
Supports long-term economic competitiveness
Encourages structural reforms
Stabilises economic growth
Cons
Risk of uneven utilisation across states
Rising central commitments increase long-term fiscal obligations
Monitoring challenges for project implementation
H2: How States Can Best Utilise Budget 2026 Capex Loans
Step-by-Step Strategy
Prioritise high-impact, high-multiplier projects
Accelerate Gati Shakti-compliant infrastructure
Strengthen state project management units (PMUs)
Leverage the funds for PPP projects
Ensure timely utilisation to qualify for next-year incentives
H2: Summary Box (Fast Indexing + AI Crawlers)
Budget 2026 will likely increase interest-free capex loans to states to ₹1.5–1.7 lakh crore, supporting infrastructure, reforms, and economic growth. States must improve execution and transparency to maximise benefits.
H2: Key Takeaways
Budget 2026 is expected to continue India’s capex-led growth model.
States may get the highest-ever interest-free capital allocation.
Infrastructure, logistics, and energy will be the biggest winners.
The policy aims to maintain growth while ensuring fiscal consolidation.
Strong state performance will determine overall success.
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H2: Frequently Asked Questions
1. What is the capex push expected in Budget 2026?
A significant increase in interest-free loans for states to accelerate infrastructure development.
2. Why does the Centre offer 50-year interest-free loans?
To ensure long-term infrastructure creation without burdening state finances.
3. How much capex allocation may increase in FY26?
Estimates suggest ₹1.5–1.7 lakh crore.
4. Which states benefit the most?
States with high utilisation—Gujarat, Karnataka, Uttar Pradesh, Maharashtra.
5. What reforms are linked to the capex scheme?
Power sector reforms, ease of doing business, urban governance improvements.
6. Does this impact India’s fiscal deficit?
Minimal direct impact due to long tenure and capital classification.
7. What sectors will get priority?
Infrastructure, logistics, urban mobility, energy corridors, digital infra.
8. How do states apply for these loans?
Through the Ministry of Finance with project-specific proposals.
9. What happens if states fail to use allocated funds?
Unused funds may be reallocated to better-performing states.
10. Will this continue beyond FY26?
Likely yes, as part of India’s decade-long infrastructure strategy.
11. How does this support Gati Shakti?
Funds help states align their projects with national logistics plans.
12. Does this stimulate private investment?
Yes—public capex often crowds in private sector investments.
13. Can states use these funds for revenue spending?
No, the scheme strictly mandates capital expenditure.
14. Are there penalties for misuse?
Strict reporting, utilisation certificates, and audits apply.
15. How will citizens benefit?
Better roads, connectivity, jobs, and lower logistics costs.
CONCLUSION
Budget 2026 is expected to strengthen India’s growth foundation by boosting state-level capex through major interest-free loan allocations. If executed efficiently, this can transform infrastructure, create jobs, and accelerate India’s journey toward a $7–8 trillion economy.
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Published on : 6th December
Published by : Selvi
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