The Special Assistance to States for Capital Investment (SASCI) scheme provides 50-year interest-free loans to states for capital expenditure. Announced in Union Budget 2024-25, the scheme carries a total outlay of ₹2 lakh crore. The Centre is now directing states to restrict project proposals to five priority sectors, aiming to sharpen spending focus. SASCI is part of India's broader strategy to crowd-in state-level infrastructure investment and sustain post-pandemic fiscal momentum.

SASCI sits at the intersection of cooperative federalism and capital formation policy. After COVID-19 revealed the fiscal fragility of states, the Centre began supplementing grants with soft loans — structured as 50-year interest-free advances — to incentivise productive capital expenditure rather than revenue spending. The logic is Keynesian: state-level infrastructure investment has a high fiscal multiplier, meaning every rupee spent triggers more than one rupee of economic activity through jobs, supply chains, and productivity gains.

What distinguishes SASCI from routine devolution or grants is conditionality. States receive funds only against specific approved projects, ensuring accountability. The Centre's latest move to cap proposals at five priority sectors — likely to include infrastructure, green energy, digital infrastructure, urban development, and health — is a policy tightening mechanism. It prevents states from using the soft-loan window for politically convenient but low-productivity projects.

For UPSC aspirants, SASCI is analytically important because it tests understanding of centre-state fiscal relations, capital vs. revenue expenditure distinctions, multiplier effects, and India's fiscal consolidation roadmap under the FRBM framework. It also raises governance questions: how do you balance state autonomy with central conditionality? The scheme reflects the Modi government's preference for performance-linked, output-oriented federalism over unconditional transfers.