In a major fiscal move, the Government of India has decided to provide ₹3.6 lakh crore worth of 50-year interest-free loans to states in the financial year 2025–26. The objective: to boost capital expenditure, accelerate infrastructure growth, and support state-level fiscal stability amid slowing global demand.
1. What Is the 50-Year Interest-Free Loan Scheme?
The scheme is part of the ‘Special Assistance to States for Capital Investment’ initiative under the Union Budget.
It offers interest-free loans with a repayment period of 50 years, giving states long-term fiscal flexibility to fund projects without adding immediate debt pressure.
2. Why ₹3.6 Lakh Crore?
The amount marks a 40% increase from last year’s allocation, showing the Centre’s continued push for state-led infrastructure development.
The focus areas include:
Roads and railways
Health and education infrastructure
Green energy and rural development
Digital and industrial corridors
3. The Centre’s Objectives
The government aims to:
Stimulate capital investment by states to revive economic growth.
Create long-term employment through infrastructure expansion.
Encourage fiscal discipline, ensuring states utilize funds efficiently.
Reduce dependence on short-term, high-interest borrowing.
4. How States Benefit
No interest burden for five decades.
Freedom to invest in priority projects aligned with national goals.
Better fiscal management, as repayments start after 50 years.
Incentives for reforms: States undertaking ease-of-doing-business, power sector, or digital reforms may receive additional allocations.
5. Broader Economic Impact
The move is expected to add momentum to GDP growth by encouraging state-driven public investment.
It will support Make in India, logistics modernization, and employment generation.
Analysts note that long-term capital investments help crowd in private investment, boosting confidence across sectors.
6. Key Concerns
Effective utilization: Past lapses in fund allocation raise questions about execution.
Fiscal responsibility: States must ensure borrowing doesn’t spiral once loaned funds are exhausted.
Transparency: Regular audits and performance-linked disbursements are essential.
FAQs:
Q1. What is the purpose of the ₹3.6 lakh crore interest-free loan to states?
A1. To help states invest in infrastructure and capital projects without adding interest burden, boosting long-term growth.
Q2. How long is the repayment period?
A2. 50 years, with zero interest, allowing states extended fiscal breathing room.
Q3. Will all states get equal allocation?
A3. No, the allocation depends on population, fiscal discipline, and reform implementation.
Q4. How does this benefit India’s economy?
A4. It drives capital formation, creates employment, and supports GDP expansion through infrastructure spending.
Q5. Is this part of the Union Budget?
A5. Yes, it’s a continuation of the Special Assistance to States for Capital Investment scheme included in the Union Budget FY26.
Published on : 22nd October
Published by : SMITA
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