India’s infrastructure financing landscape has undergone a transformation, progressively moving beyond traditional budgetary sources towards more sophisticated and innovative strategies. Historically, critical infrastructure sectors such as roads, railways, ports, and urban rail have relied on budgetary support and government sanctions. However, with rapid infrastructure development, introduction of favourable policies and the emergence of new sectors, financing mechanisms have also progressed. To reduce dependence on government spending, concerted efforts are being made to secure long-term finance for projects.
There are of course no silver-bullet solutions. While the government is investing significantly, more funding is still required for a developing economy like India. Moreover, centre-backed, relatively risk-free assets, with predictable cashflows and inflation indexing, are a good liability match for pension funds, insurance companies and sovereign wealth funds. Various financing mechanisms are being explored to meet the needs of sectors such as renewable energy, power, water and desalination, and telecom. This multi-stakeholder approach reflects a mature and forward-looking financial strategy that balances risk, returns and the centre’s infrastructure goals.
India Infrastructure takes a look at emerging funding avenues being tapped across sectors…
Renewable energy: Funding the clean energy transition
India has maintained its status as a favourable investment destination for global and domestic investors. Compelling valuations have attracted capital from strategic investors aiming for more exposure in the renewable energy sector. Global energy giants including Petronas, TotalEnergies, Shell and Engie have strengthened ties and collaborations with Indian renewable energy companies. Big financing firms have structured many deals through bonds, debt, equity investment and mezzanine financing. Some acquisitions have put the spotlight back on consolidation within the sector. Commercial banks, initially cautious about this nascent industry, have now become key lenders. Global private equity investors continue to drive deal-making activity while clean energy initial public offerings (IPOs) have attracted widespread investor interest.
Building on the success of recent energy IPOs, many companies now want to go public. Last year, Indian Renewable Energy Development Agency Limited’s Rs 21.5 billion IPO was oversubscribed by 38.8 times. Riding this wave of momentum, NTPC Green Energy, Waaree Energies and Acme Solar have filed for an IPO. High-profile listings like these have set a high benchmark for subsequent energy IPOs.
Over time, India has progressively strengthened its global market position, supported by significant domestic and global debt capital. As per India Infrastructure Research, the debt market, a critical funding source for energy projects, has reached over Rs 1 trillion. Key recent debt financings include the Asian Development Bank’s (ADB) $434.25 million loan to support renewable energy development in Assam, and Cleantech Solar’s long-term green financing worth Rs 8.55 billion from Aseem Infrastructure Finance.
The sector continues to attract long-term investors, with sustained interest from private equity and venture capital. As per India Infrastructure Research, merger and acquisition activity, including asset sales, exceeded Rs 200 billion. Two key recent deals in the sector include Brookfield’s $845 million investment (via Brookfield Global Transition Fund-II) in a joint venture (JV) with Hyderabad-based Axis Energy Ventures, and TotalEnergies’ investment of $300 million through a 50:50 JV with Adani Green Energy.
In 2023, the launch of India’s first sovereign green bond established a new pathway for financing climate goals and green ambitions. Building on this success, the Reserve Bank of India announced plans to issue Rs 200 billion in sovereign green bonds in four equal tranches (Rs 50 billion each) during the second half of 2024-25. It may also exercise a greenshoe option (the right to sell more shares than planned) of up to Rs 20 billion for each auction.
Power: Increasing capacity addition necessitates borrowing
With the government playing a key role in financing the power sector, the net budgetary allocation for the Ministry of Power for 2024-25 has been set at Rs 205.02 billion compared to Rs 206.71 billion in 2023-24.
Efforts to improve existing infrastructure, shifts in the electricity mix and the move towards clean energy have attracted an influx of multilateral loans. Complementing these efforts, domestic banks such as the State Bank of India and Axis Bank have also increased their involvement in power sector financing.
In June 2024, ADB approved loans worth $148.5 million and $200 million to strengthen the electricity supply in Sikkim and Uttarakhand, respectively. Further, in December 2023, REC Limited signed a Euro 200 million loan agreement with Germany’s KfW to boost the distribution segment.
Foreign direct investment in the sector also witnessed substantial growth, growing by 144 per cent to $1.7 billion in 2023-24 from $697.92 million in the previous year. In August 2024, British International Investment and Norfund announced plans to invest in IndiGrid’s three interstate transmission system (ISTS) projects currently under construction.
The development of dedicated transmission corridors, coupled with the waiver of ISTS charges and the liberalisation of foreign investment norms, has further catalysed investment and growth in the sector.
Water and desalination: Budgetary and multilateral support key to sector growth
Water scarcity challenges have highlighted the need for innovative financing solutions to fund new desalination plants. Funding for these projects is sourced through government budgets, public-private partnerships and loans from multilateral agencies.
Reinforcing its commitment to the sector, the Union Budget 2024-25 has allocated funds worth Rs 213.23 billion to the Department of Water Resources, River Development and Ganga Rejuvenation. Further, around Rs 701.63 billion has been allocated to the Jal Jeevan Mission, with Rs 80 billion allocated to the Atal Mission for Rejuvenation and Urban Transformation (AMRUT)2.0.
Many state governments are also prioritising the sector and making significant strides. The Department of Industries in Chennai has plans to build additional desalination plants, including the Perur plant, and treat grey water to meet excess water demand, for which it has attracted investments worth Rs 6.6 trillion. In Haryana, the Faridabad Metropolitan Development Authority has approved water supply and sewerage projects worth Rs 26 billion. The Uttar Pradesh government has allocated Rs 1.85 million for Ganga water supply in Ghaziabad. In Kolkata, the Bidhannagar Municipal Corporation is upgrading 15 overhead water tanks in the Salt Lake area. The estimated project cost is around Rs 232 million and funds have been sanctioned under the AMRUT scheme.
Data centres: New age digital infrastructure attracts investor interest
The data centre asset class, with its downside protection and low risk, allows diversification for investors, making it an attractive investment opportunity. India presents particularly attractive opportunities in this sector, with significantly lower capital expenditure compared to developed markets.
The recent surge in digital infrastructure has driven massive data consumption, necessitating substantial investments. Debt financing has played a crucial role in this expansion. For instance, in September 2024, CapitaLand India Trust secured Rs 13 billion in debt to construct a data centre in Navi Mumbai, with ambitious plans to invest $1.15 billion in Indian data centres by 2028. Similarly, in November 2023, Kotak Alternate Asset Managers infused an additional Rs 6 billion into Sify Technologies, bringing its total investment to Rs 16 billion to expand the company’s data centre footprint.
Of late, the Uttar Pradesh government is actively seeking private investors to establish eight data centres, with a projected total investment of approximately Rs 300 billion. In a recent move, Amazon India has acquired a 38.18-acre land parcel from the Lodha Group for over Rs 4.50 billion to develop a hyperscale data centre in Mumbai, further underscoring the sector’s investment potential.
Promising potential
Over the years, in line with the shift towards clean energy, efficient water management and increasing data consumption, non-conventional infrastructure sectors have gained significant investor interest.
Moreover, intermittent global recessionary patterns have made it crucial for India to prioritise infrastructure creation by utilising different funding mechanisms.
Going forward, a multi-pronged financing approach will help scale up water infrastructure and ensure water security. With foreign investors now allowed to invest in Indian data centre entities under the foreign venture capital investment route, overseas capital inflows are expected to rise. In the energy space, for lenders, greenfield, hybrid, round-the-clock projects, and commercial and industrial rooftop projects will remain key focus areas. Continued interest from foreign investors will further drive inbound investments. Overall, India offers a flourishing investment climate, providing opportunities to actively pursue alternative financing mechanisms.
Harman Mangat
