Interest Subvention on Term Loans: What the October 2026 Manufacturing Schemes Mean for Capex Finance
Interest subvention on term loans is a government payment that covers part of the interest on a capital loan. On 28 October 2026 the Union Cabinet approved a 3% a year subvention on eligible term loans for container manufacturing plants, under the ₹10,000 crore Container Manufacturing Promotion Scheme. Scheme guidelines are still to be approved.
Most manufacturers pay the full interest rate on the term loan that builds their plant. Government schemes sometimes take part of that cost away, through an interest subvention, a capital subsidy or an incentive linked to sales. On 28 October 2026 the Union Cabinet approved two manufacturing schemes that use these tools: the Container Manufacturing Promotion Scheme and the Khelo India Sports Goods Manufacturing Scheme.
Neither scheme is open for applications yet. Both need guidelines, and the details in those guidelines will decide how much the support is worth to a borrower and when the money arrives. But promoters planning capex for 2027 can start now: size the project to the eligibility thresholds, build two versions of the funding plan, and talk to lenders about how they will treat the subsidy. This guide explains what was approved, how interest subvention on a term loan works, and what it does to your loan cost, debt service and cash flow.
Interest subvention on term loans: what was approved on 28 October 2026
Interest subvention means the government pays part of the interest on an eligible loan, so the borrower's effective rate is lower than the rate the lender charges. It is different from a capital subsidy, which pays a share of the project cost, and from a turnover-linked incentive, which pays a share of sales.
As of 29 October 2026, the Container Manufacturing Promotion Scheme offers a 3% a year interest subvention on eligible term loans for new container plants and expansions, according to the Press Information Bureau release of 28 October 2026.
| Scheme | Outlay | Support for capex | Who qualifies | Period |
|---|---|---|---|---|
| Container Manufacturing Promotion Scheme | ₹10,000 crore | 3% a year interest subvention on eligible term loans (₹859 crore) | Greenfield plants of at least 1,00,000 TEUs a year; brownfield expansions adding at least 25,000 TEUs a year | FY 2027-28 to FY 2039-40 |
| Khelo India Sports Goods Manufacturing Scheme | ₹1,856.67 crore | 20% capex support for anchor investors; up to 15% turnover-linked support (₹1,130 crore for both) | Anchor investors investing at least ₹100 crore in a Sports Goods Manufacturing Zone; manufacturers investing ₹10 crore or more | FY 2026-27 to FY 2033-34 |
A TEU is a twenty-foot equivalent unit, the standard measure of container capacity. One 40 ft container counts as two TEUs.
The Container Manufacturing Promotion Scheme in detail
The scheme was announced in the Union Budget 2026-27. The Ministry of Ports, Shipping and Waterways said on 28 October 2026 that it aims to lift India's annual container manufacturing capacity about ten-fold, to 7.5 lakh TEUs from about 70,000 TEUs today. It has five parts:
- Interest Subvention Assistance, ₹859 crore. 3% a year on eligible term loans (capital loans) for greenfield plants and brownfield expansions.
- Operational Expenditure Assistance, ₹8,891 crore. A payment per container made to global shipping standards and sold: ₹49,500 for a 20 ft container, ₹86,625 for a 40 ft container and ₹37,125 to ₹74,250 for a 20 ft specialised container.
- Testing and certification, ₹150 crore. Common facilities such as dynamic longitudinal impact testing.
- Scheme management, ₹100 crore.
- Land at major ports. Major Port Authorities may lease land to container units at 25% of the notified rate.
To qualify for the subvention, a greenfield plant needs at least 1,00,000 TEUs of annual capacity. A brownfield expansion must add at least 25,000 TEUs a year, be commissioned within three years of in-principle approval, and meet global container standards. For the per-container payments, units need at least 70% local content until FY 2031-32, rising to 90% from FY 2032-33.
An Inter-Ministerial Steering Committee chaired by the Secretary, Ministry of Ports, Shipping and Waterways, will approve the guidelines and sanction assistance, according to the ministry's release of 28 October 2026.
The scheme also matters to suppliers. The ministry named corner castings, specialised steel, wooden frames and paints as ancillary industries expected to benefit. Those suppliers will not get the subvention, but a new container plant is a new customer, and new customers need working capital and sometimes their own capex.
The Khelo India Sports Goods Manufacturing Scheme in detail
The Cabinet approved this scheme with an outlay of ₹1,856.67 crore for FY 2026-27 to FY 2033-34. Two components carry the money for manufacturing, with a combined ₹1,130 crore:
- Anchor Investment Support. 20% capital expenditure support for anchor investors investing at least ₹100 crore in a Sports Goods Manufacturing Zone. Up to four zones of more than 300 acres each are planned, through the BHAVYA scheme and NICDC industrial parks.
- Turnover Linked Support. Incentives of up to 15% for manufacturers investing ₹10 crore or more.
The scheme also covers 70% of first-time international certification costs and 50% of renewal costs (₹105 crore), upgrades common facilities in existing clusters through cost sharing with States, and offers grants of up to ₹20 lakh to DPIIT-registered sports start-ups, according to the PIB note of 28 October 2026.
The ₹10 crore threshold brings mid-sized manufacturers into range. The release does not yet say how the 15% is calculated, on what turnover base, or for how many years. Those details will come with the guidelines.
How an interest subvention changes your term loan
A term loan for capex is repaid over years from the cash the new plant earns. Lenders test whether that cash is enough with the debt service coverage ratio (DSCR): cash available for debt service divided by the principal and interest due in the year. Read more in our DSCR guide.
Worked example 1: a ₹200 crore container plant loan
Illustrative example, assuming a ₹200 crore term loan at 10% a year, a 3% subvention on the full outstanding balance in the first repayment year, ₹20 crore of principal due that year and ₹48 crore of cash available for debt service:
| Item | Without subvention | With 3% subvention |
|---|---|---|
| Interest for the year | ₹20,00,00,000 | ₹14,00,00,000 net of subvention |
| Principal due | ₹20,00,00,000 | ₹20,00,00,000 |
| Total debt service | ₹40,00,00,000 | ₹34,00,00,000 |
| DSCR (₹48 crore divided by debt service) | 1.20 | 1.41 |
On these assumptions the subvention is worth ₹6 crore in the first repayment year, and the DSCR rises from 1.20 to 1.41. The saving falls each year as the loan is repaid, because the 3% applies to a smaller balance.
Worked example 2: the cost of waiting for the subvention
The releases do not say whether the 3% will be passed through by the lender as a lower rate or paid to the borrower after a claim. If it is paid after a claim, you pay the full rate first and fund the gap yourself.
Illustrative example, assuming the ₹6 crore from example 1 is reimbursed six months late and the gap is funded from a cash credit line at 11% a year: the carrying cost is about ₹33 lakh. That is why lenders often look at DSCR both with and without the subsidy, and why your working capital limit should leave room for the claim cycle.
How a capital subsidy changes your funding plan
A 20% capex support payment works differently. It does not lower your rate. It reduces how much of the project you fund with debt and equity, once it is received.
Illustrative example, assuming a ₹100 crore anchor investment in a Sports Goods Manufacturing Zone, funded 30% by promoter equity (₹30 crore) and 70% by a term loan (₹70 crore), with the 20% support of ₹20 crore used to prepay the loan:
| Item | Amount |
|---|---|
| Project cost | ₹1,00,00,00,000 |
| Promoter equity at 30% | ₹30,00,00,000 |
| Term loan at 70% | ₹70,00,00,000 |
| Capex support at 20% | ₹20,00,00,000 |
| Term loan after prepayment | ₹50,00,00,000 |
| Interest saved a year at 10% | ₹2,00,00,000 |
The catch is timing. Until the support arrives, the full ₹100 crore has to be funded. Many promoters bridge it with a larger term loan or a short-term loan, and lenders will ask how the subsidy is recorded, who receives it and whether it must be used to prepay. Check the prepayment terms in your sanction letter before you assume the ₹2 crore saving.
What lenders will look at
Lenders make their own credit decisions, and treatment of government support varies. Expect questions on these points:
- Eligibility evidence. In-principle approval, capacity certificates, local content records and commissioning dates.
- Base case without the subsidy. Many credit teams want the project to service debt even if the support is late or reduced.
- Promoter contribution. Whether the subsidy can count towards your margin money, or must come on top of it.
- Escrow and claim flow. Whether subsidy and incentive receipts go to a designated account and prepay the loan.
- Working capital. The per-container payments and turnover incentives are paid on sales, so receivables and claims sit on your balance sheet. Your working capital limit should reflect them.
Interest rates: the backdrop for capex in 2026
RBI raised the repo rate by 25 basis points to 5.50% on 7 October 2026 and said policy action ahead "can only be a rate hike or a pause". The next Monetary Policy Committee meeting is on 2 to 4 December 2026. External benchmark linked loans move with the repo rate, so a 3% subvention matters more when the base rate is rising. Our business loan interest rates guide explains how MCLR and EBLR work.
Also this week: PMEGP margin money release
On 28 October 2026 the Ministry of MSME released ₹1,000 crore of margin money subsidy under the Prime Minister's Employment Generation Programme (PMEGP), covering 11,333 beneficiaries whose bank-sanctioned project loans total about ₹3,260 crore, according to PIB. PMEGP supports new micro enterprises through a subsidy on the project loan. If you are a first-time micro entrepreneur, apply through the scheme's own portal and the implementing agency.
What to do now if you plan manufacturing capex
- Map your project to the thresholds. 1,00,000 TEUs greenfield or 25,000 TEUs brownfield for containers; ₹100 crore anchor or ₹10 crore manufacturer for sports goods.
- Build two funding plans. One without any subsidy, one with it, and keep the DSCR above your lender's floor in both.
- Plan the bridge. Assume support arrives after a claim until the guidelines say otherwise, and size a short-term or working capital facility for the gap.
- Keep land and local content records clean. Port land leases and local content percentages will drive eligibility.
- Read the guidelines when they are notified. They will set the claim process, timelines and any cap per borrower.
- Talk to more than one lender early. Treatment of subsidies, prepayment and escrow differs. Compare term sheets before you commit. See our capex and equipment loan guide for documents and promoter contribution.
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