Centre's incentive scheme boosts state capex, but multiplier hinges on matching funds: SBI Research

New Delhi, [India] April 22 (ANI): The Centre's Special Assistance to States for Capital Expenditure (SASCI) scheme has helped states step up infrastructure spending over the last five years, but its full multiplier effect will only materialise if states contribute matching funds and the focus shifts further to tied grants, SBI Research said in its latest report.
Launched in October 2020 as a 50-year interest-free loan during the pandemic, SASCI has provided about Rs 4.5 lakh crore to states. The support has lifted state capital expenditure from 2.2 per cent of GDP in FY22 to 2.7 per cent in FY25 (RE), and the Economic Survey 2025-26 notes it helped keep overall state capex at around 2.4 per cent of GDP. Over time, the scheme has moved from a broad-based grant to a more structured mix of untied and reform-linked, sector-specific funding.
The benefits are visible in the quality of state spending. Fiscal deficit including SASCI is projected to fall from 3.5 per cent of GDP in FY25 to 3.2 per cent by FY27 (BE), with a larger share of the deficit now going to productive investment rather than revenue shortfalls. Revenue deficit plus capital outlay as a share of GSDP has also declined in many states.
In the first two years, most states absorbed SASCI funds fully. Since FY23, execution has become uneven. Madhya Pradesh, Rajasthan, Maharashtra and Andhra Pradesh continue to perform well, while Punjab and Kerala face persistent stress. Telangana shows low utilization alongside high guarantees, and Manipur has the weakest record among North-Eastern states. The pattern is linked to fiscal health: states with higher debt-to-GSDP ratios and persistent revenue deficits tend to have lower absorptive capacity as revenue spending crowds out capital expenditure.
Ageing states show lower SASCI utilization compared to Youthful and Intermediate states, though there are sharp differences within cohorts. Jharkhand, a Youthful state, has a low utilization rate, while Rajasthan, also Youthful, records higher uptake despite a higher debt burden.
States with large cash transfer programmes, Jharkhand, Karnataka and West Bengal top the list, they also tend to have high SASCI utilization. SBI's analysis shows that for every Rs 1 of SASCI, states reduce their own capex by about Rs 0.34 on average, and by Rs 0.55 in revenue-deficit states.
Tied SASCI, largely linked to urban planning, has risen from 19 per cent of the total in FY24 to 39 per cent in FY26. A Rs 1 increase in tied SASCI raises total capex by Rs 0.87 with almost no crowding out of state funds. Untied SASCI, in contrast, adds only Rs 0.26 to total capex while reducing own-funded capex by Rs 0.67. That means tied grants are far more additional and less prone to substitution.
The report further noted that even if states contribute 30 per cent of the SASCI amount as matching capex, the multiplier effect kicks in. At 100 per cent matching, the multiplier becomes as strong as India's overall capex multiplier. The report also estimates that with the revised base year and 11 per cent nominal GDP growth, the Centre's fiscal deficit could be around 4.6 per cent of GDP in FY27, assuming higher subsidies and excise cuts. (ANI)