Union territories can access Centre’s 50-year interest-free loan for FY26 in infra push
Until now, the scheme—announced in 2020 as a pandemic-induced stimulus—was open only to states.
New Delhi: Union territories will be allowed to borrow from the Centre’s 50-year interest-free loan scheme for capital expenditure starting FY26, two people aware of the matter told Mint, part of a broader capital investment thrust.
The inclusion of union territories aims to ensure uniform development and help finance infrastructure and social sector projects in regions that often face resource constraints, the people mentioned above said.
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Until now, the scheme—announced in 2020 as a pandemic-induced stimulus—was open only to states.
"The inclusion of union territories in the Centre’s 50-year interest-free capex loan scheme, starting in FY26, is a significant step toward ensuring more balanced and inclusive development across the country," the first person mentioned above said.
"This move will help finance critical infrastructure and social sector projects in regions that have traditionally faced resource constraints, which include some union territories," the person added, requesting anonymity.
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India has eight union territories. Some, like Delhi and Puducherry, have legislative powers, while others are administered by a lieutenant governor appointed by the President.
The Centre's decision to grant union territories access to funds under the loan scheme follows requests from union territory governments over the past few years, the second person mentioned above said.
"This move reflects the Centre’s recognition of the unique challenges faced by union territories and its commitment to fostering balanced development across all regions," the person added.
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A finance ministry spokesperson didn't respond to emailed queries.
Introduced in 2020-21 (FY21), the Centre’s 50-year interest-free capex loan scheme has been crucial to driving capital spending by states and stimulating the economy post-pandemic.
For FY26, the Centre has allocated ₹1.5 trillion for these loans, aiming to boost public infrastructure spending and support state-level capital projects.
Of the ₹1.5 trillion 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 second person mentioned above said.
Finance minister Nirmala Sitharaman significantly increased the allocation to the scheme to ₹1.5 trillion each for FY25 and FY26, up from ₹1.10 trillion in FY24, although the FY25 allocation was revised to ₹1.25 trillion due to a slowdown in the first half of the fiscal year.
States' total outstanding liabilities under the scheme are expected to exceed ₹3.5 trillion by end-FY25, Mint reported on 27 April.
The states with the highest liabilities under the centrally sponsored scheme are Uttar Pradesh ( ₹40,410 crore), Madhya Pradesh ( ₹32,995 crore), Bihar ( ₹30,882 crore), Rajasthan ( ₹22,680 crore), West Bengal ( ₹19,963 crore), Maharashtra ( ₹19,811 crore) and Andhra Pradesh ( ₹18,354 crore).
"This move by the Centre reflects a coordinated push to boost infrastructure capex amid a delayed revival in private investment," said Madan Sabnavis, chief economist, Bank of Baroda. "I believe this step will ultimately benefit the broader economy," he added.
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