The Capex Loan Scheme: Driving Infrastructure Development in India

What is the capex loan scheme introduced by the Centre?

The Government of India launched the interest-free capital expenditure (capex) loan scheme in 2020–21 as a strategic initiative aimed at supporting states through growth-oriented investments. This scheme is designed to foster both ongoing and upcoming infrastructure projects, which are essential for sustaining long-term economic growth.

Why was the scheme launched?

The primary objectives of the scheme are:

• Accelerate economic recovery following the pandemic.
• Enhance infrastructure and create lasting assets.
• Boost public investment and generate employment opportunities.
• Assist states while alleviating the burden of interest payments.
• Encourage reform-driven governance by tying a portion of the loan to performance-based criteria.

How does the scheme operate?

The operational framework of the scheme involves:

• Providing loans that are interest-free for a duration of 50 years, classified as special assistance.
• Distributing funds based on:
  • States’ shares in central taxes and duties.
  • Progress in implementing specific reforms.
  • Timely submission and approval of project proposals.
• States are required to meet stipulated conditions and submit proposals to the Department of Expenditure.
• Projects must be registered through the PFMS portal to ensure transparency and effective tracking.

What is meant by “reforms” under this scheme?

In this context, “reforms” pertain to improvements at the state level in policy and administration that align with national priorities. These reforms include:

• Urban planning and property tax reforms.
• Power sector reforms such as metering and tariff rationalization.
• Enhancing transparency in budgeting and auditing processes.
• Modernizing logistics and public transport systems.
• Implementing digital solutions for service delivery.

States demonstrating measurable advancements in these areas qualify for a larger share of the loan.

How much has been disbursed so far?

• FY24:
  • Total disbursed: ₹1.49 lakh crore
  • Half of this amount was linked to specific reform outcomes and targeted projects.
• FY26:
  • Total earmarked: ₹87,000 crore
  • ₹55,000 crore allocated for states (based on tax and duty shares)
  • ₹2,000 crore designated for Union Territories
  • ₹63,000 crore to be contingent upon reforms—guidelines are forthcoming.

What is the current status in FY25–26?

The disbursal of projects under the ₹87,000 crore scheme is currently facing delays, primarily due to a lack of clarity on submission formats through the PFMS portal. The Centre has ceased accepting manual submissions, prompting some states to utilize their own funds to continue capex projects, with the expectation of reimbursement once approvals are secured.