The Department of Expenditure has stepped up pressure on state governments to move faster on the utilisation of interest-free loans earmarked for capital expenditure, after data showed that only around one-fourth of the allocated funds have been spent so far. The warning comes at a time when public capital spending remains a key lever for supporting growth, infrastructure creation and industrial demand, including in sectors such as automotive, electric vehicles and mobility, which depend heavily on roads, logistics networks, urban transport systems and power infrastructure.
According to officials, the Centre had released about ₹51,000 crore under the Scheme for Special Assistance to States for Capital Investment by October 1. The scheme is designed to encourage states to front-load investment in productive assets by offering interest-free loans that can be used for capital projects. But the pace of utilisation has fallen short of expectations, prompting the finance ministry's expenditure department to intervene more actively and work with states to identify viable projects and remove administrative delays.
Spending Gap Widens
The shortfall in utilisation is significant because the scheme is intended to translate central support into on-ground infrastructure spending within the fiscal year. When states delay project execution, the intended multiplier effect on the economy is also delayed. That matters especially in a year when policymakers are seeking to sustain domestic demand and investment even as external conditions remain uncertain. Capital expenditure is widely viewed as more growth-accretive than revenue spending because it creates assets that can support future productivity.
The current pace suggests that while funds have been allocated, the bottleneck lies in project readiness, procurement timelines, approvals and implementation capacity at the state level. In several cases, states may have access to the money but not enough shovel-ready projects to absorb it quickly. In others, delays may stem from tendering, land acquisition, inter-departmental clearances or the sequencing of large infrastructure works.
For the automotive and mobility ecosystem, the implications are indirect but important. Better state-level capital spending can improve road connectivity, freight corridors, charging infrastructure, urban transit and industrial access, all of which shape vehicle demand and the economics of EV adoption. Slower utilisation, by contrast, can postpone those benefits and weaken the broader infrastructure push that supports manufacturing and mobility transitions.
Centre Pushes States
The Department of Expenditure is now working with states to address these delays and identify projects that can be taken up without further loss of time. The focus is not merely on disbursing funds, but on ensuring that the money is converted into actual capital formation. Officials are understood to be tracking utilisation closely and engaging with state administrations to understand where execution is lagging.
This hands-on approach reflects the Centre's concern that unspent allocations could undermine the credibility of the scheme and reduce the fiscal stimulus effect it is meant to deliver. Interest-free loans are a powerful incentive, but only if states are able to deploy them efficiently. The current utilisation rate indicates that the challenge is less about financing and more about execution discipline.
The scheme has become an important instrument in the Centre's broader strategy to support state-led infrastructure creation without adding to the cost burden of borrowing. By lowering the financing cost to zero, the government has tried to make capital investment more attractive for states that may otherwise hesitate to expand spending amid fiscal constraints. Yet the latest numbers show that the availability of cheap capital alone does not guarantee rapid deployment.
Execution Is The Test
The coming weeks will be critical as states race to convert allocations into actual spending before the fiscal window narrows further. If utilisation improves, the scheme could still deliver a meaningful boost to infrastructure and related sectors. If not, the underperformance may raise questions about project pipelines, administrative readiness and the ability of states to absorb central support at scale.
For now, the message from the Department of Expenditure is clear: the money is available, but the clock is ticking. States must move quickly to finalise projects, clear procedural hurdles and accelerate spending if they are to meet targets and unlock the full economic benefit of the capital investment push.