Centre links 40% of interest-free state capex loans to new reforms

The Centre has drawn up a new set of reform-linked conditions for states to access a portion of the ₹1.5 lakh crore interest-free capex loan for FY26, two people aware of the matter said, with a focus on digitization, governance, land records and urban planning.

- Rhik Kundu

NEW DELHI:

"States will now be required to implement targeted reforms in key areas including digital public infrastructure (DPI) for agriculture, improvements in financial management systems, better urban planning, and streamlined land-related processes," said the first person mentioned above, speaking under the condition of anonymity.

Of the ₹1.5 lakh crore earmarked for FY26, around 60% will be unconditional or linked to infrastructure spending, while the remaining 40% will be tied to reforms that states and Union territories must undertake to access the funds, the person mentioned above added.

Interest-free loans with a tenure of 50 years have played a vital role in stimulating capital spending by states and catalyzing the economy since the pandemic. As things stand, states account for 20-25% of India's total infrastructure spending, a critical priority for the government.