The Scheme for Special Assistance to States for Capital expenditure (SASCI) has seen lesser utilisation in ageing States as compared to intermediate and youthful states, a report by SBI stated.
The report, authored by Soumya Kanti Ghosh (Member of 16th Finance Commission and PM-EAC and Group Chief Economic Adviser at SBI) and his team, was made public on Wednesday. The scheme was launched in October 2020 as a 50-year interest-free loan mechanism to support state governments in stepping up capital spending at a time when state finances had come under pressure from the pandemic-led shortfall in revenues.
According to the report, ageing states have average SASCI utilisation at 74.5 per cent, while for intermediate, it is 80.6 per cent and youthful at around 83 per cent. It may be noted that by using a a modified version of the standard International Labour Organisation classification, RBI classifies a state as if the share of population aged 60 years and above is 15 per cent or more, intermediate if it is 10 per cent to below 15 per cent, and youthful if it is below 10 per cent. Kerala and Tamil Nadu have has already entered the category of ageing states, while Himachal Pradesh, Punjab, Andhra Pradesh, West Bengal, Maharashtra, Odisha and Karnataka expected to join this club by 2031.
Meanwhile, SBI research found that most of the states that are having large cash transfers are also having high SASCI utilization rates. “One reason for this could be substitutability of own capital expenditure with SASCI. We examine this issue in the next section,” it said. At the same time, Fiscal Deficit including SASCI is expected to 3.2 per cent by FY27 (BE) from 3.5 per cent in FY25. Thus, “SASCI has helped the states restructure their quality of spending and ensured that larger part of fiscal deficit arises from productive investment and not revenue deficit. Further, RD plus capital outlay as % of GSDP has also declined in many states,” the report said.
It also highlighted that a Rs 1 increase in SASCI is associated with only about Rs 0.67 increase in total capital expenditure, implying that the scheme is only partially additional. This incomplete transmission is explained by the response of own-funded capital expenditure. The corresponding estimates show that a Rs 1 increase in SASCI leads to a decline of roughly Rs 0.34 in own-funded capex, suggesting that states substitute a portion of SASCI for spending they would otherwise have financed themselves.
The impact of no crowding in is more pronounced on Revenue deficit states which show a decline in own capex by Rs 0.55 as compared to Rs 0.34 for all states. Taken together, “these results imply that while SASCI does raise capital expenditure, nearly one-third of the transfer is absorbed through crowding out of state resources rather than translating into new investment,” the report said.
It estimated the likely fiscal deficit due to estimated hike in subsidies as well as the estimated loss due to excise cuts. With the revised base year, the fiscal deficit for FY27 is likely to be at 4.6 per cent of GDP assuming a 11 per cent nominal GDP growth rate. Against this background, “it is important to note that Centre will continue to support states in their quest for capital expenditure, even in these difficult times,” it said.
Published on April 22, 2026