India’s infrastructure financing landscape stands at an inflection point. Many recent policy and regulatory reforms have fostered a more disciplined financing ecosystem. Public investment has scaled to record highs, while private capital is gaining momentum via innovative financing vehicles. Moreover, asset monetisation has now become a key driver for capital recycling. In this context, industry experts discuss the evolving trends in capital flows and the emerging sources of funding, the impact of government initiatives, and the way forward for mobilising private capital to advance India’s infrastructure growth story…
What are the key trends in capital flows into the infrastructure sector? Which sub-sectors are currently attracting the most interest?
Jyoti Prakash Gadia
There has been a noticeable pick-up in capital flows into the infrastructure sector for both greenfield and brownfield projects. Infrastructure development holds tremendous potential as a catalyst for growth. Fresh investments are expected to continue in sub-sectors of critical importance in the emerging scenario. Financial deals are also taking place in completed projects, enabling recycling of funds.
The renewable energy sub-sector is attracting the most interest, while power transmission is also witnessing new investments.
Looking ahead, both data centres and energy storage systems, which were added to the “Harmonised Master List of Infrastructure” (HML) by the government, are likely to see a wave of new projects being planned and funded.
Additionally, infrastructure investment trusts (InvITs) have become a key vehicle to channelise institutional capital into operational assets, with India’s InvIT market expected to grow 3.5 times by 2030. Beyond energy and digital infrastructure, smart industrial zones and sustainable logistics hubs are emerging areas where investors are committing funds.
Mukul Modi
Capital flows into the infrastructure sector have grown significantly over the past decade. The Government of India’s (GoI) expenditure on infrastructure has increased from about 0.5 per cent of GDP to over 2.2 per cent of GDP during the same period. While the contribution of the central government has risen from less than 15 per cent of the total expenditure to about 45 per cent of total expenditure, a matching growth from the state and private sectors has not been witnessed. In fact, in absolute terms, the contribution of both sectors towards infrastructure has remained almost unchanged during this period. In this regard, what is more concerning is the decline in private sector contribution towards infrastructure.
Out of the various sub-sectors of infrastructure, energy and roads have accounted for more than 75-80 per cent of the capital flow. Even in these sub-sectors, the distribution is not even. In the energy sector, it is renewable energy that has attracted the lion’s share of investments due to its lower execution risk. Meanwhile, in the road sector, major investments are being directed towards hybrid annuity models or build, operate, transfer annuity projects, where revenue risk is minimal, leading to maximum activity.
“A single-window approval process would reduce instances of time and cost overruns substantially.” Mukul Modi
Prashant Murkute
Clean energy, evacuation infrastructure and grid stability have emerged as the driving forces of infrastructure investments over the past one year. India added about 30 GW of renewable energy capacity in FY 2025 compared to about 19 GW in FY 2024. Additionally, India auctioned renewable energy capacity of around 50 GW annually in FY 2024 and FY 2025, compared to just 9 GW in FY 2023.
The total investment in the power sector during the period 2019-24 was about Rs 14.6 trillion. Further, investments of approximately Rs 25 trillion are expected in this sector during FY 2025 to FY 2030, which is a CAGR increase of 9-10 per cent. Of this, 75 per cent is expected towards generation (largely renewables), and the rest is towards transmission and distribution.
As of June 2025, total infrastructure sector foreign bank outstanding growth stood at about -0.5 per cent year on year at Rs 13.17 trillion, while power sector foreign bank outstanding grew by 8 per cent year on year to Rs 6.95 trillion. Meanwhile, other major sectors such as roads, telecom and railways showed negative growth. In contrast, infrastructure non-banking financial companies (NBFCs) saw a healthy double-digit growth in their loan books and a 20-40 per cent growth in outstanding renewable energy loan outstandings. NBFCs surpassed banks with a 55 per cent share in total infrastructure financing, driven by healthy growth in the past few years.
“Clean energy, evacuation infrastructure and grid stability have emerged as the driving forces of infrastructure investments over the past year.” Prashant Murkute
Virender Pankaj
India’s infrastructure financing landscape is witnessing unprecedented growth in investments. Under the National Infrastructure Pipeline (NIP), the central government has laid out ambitious plans for investments of Rs 111 trillion, providing enhanced budgetary allocations each year. On the private sector side, institutional investors, sovereign wealth funds and multilaterals are participating actively, often co-investing alongside global private equity funds. Infrastructure investment trusts (InvITs) have become a pivotal instrument in the financing landscape, with a growing number of road and power transmission assets being bundled under this structure. This is likely to unlock liquidity for developers and offer yield investors an attractive alternative.
Renewable energy and roads lead the pack, with substantial investments flowing towards them.
- The government’s ambitious target of achieving 500 GW of green energy capacity by 2032 has attracted both domestic and international investments. Renewable energy is moving towards hybrid models with storage – wind-solar hybrid (WSH), firm and despatchable renewable energy (FDRE), energy storage systems (ESSs), and solar with battery energy storage systems (BESSs). The sector has estimated investment opportunities worth about Rs 7 trillion.
- India has the second-largest network of roads in the world, spanning 6.67 million km. An additional 30,000 km of national highways length is expected to be awarded in the next three to five years, which should create investment opportunities of more than Rs 6 trillion.
- The government is giving a huge impetus to electric mobility, with planned investments of Rs 1,750 billion for the deployment of an estimated 100,000 e-buses in major cities.
- Emerging hotspots include data centres, logistics and warehousing, and urban infrastructure segments like smart cities, metro rail, and water treatment assets, all of which are attracting investments.
While there is considerable interest from domestic and global equity capital in India, private debt capital has lagged. The public sector has done most of the heavy lifting when it comes to infrastructure debt. It is critical for all stakeholders to come together to boost domestic and global capital into infrastructure lending, and we at Aseem Infrastructure Finance Limited are more than willing to anchor any such multi-stakeholder initiative.
“Success hinges on navigating execution challenges, aligning stakeholders across funding layers, and effectively mobilising private capital to drive sustainable infrastructure development.” Virender Pankaj
What has been the impact of the key initiatives taken by the central government and regulatory bodies on infrastructure financing?
Jyoti Prakash Gadia
The government has been taking significant steps for infrastructure development. At the central level, the setting up of the Infrastructure Finance Secretariat is giving new direction to infrastructure financing by various agencies, while also encouraging new avenues of funding.
Reforms and continuous improvements in the standard operating procedures by organisations such as the National Highways Authority of India (NHAI) have helped to partly address long-standing bottlenecks. This is evident from the success of the hybrid annuity model in road projects.
The issuance of InvITs by NHAI and POWERGRID is another positive step, enabling reinvestment of funds and facilitating further growth by starting new projects.
Similarly, the identification of the top 50 tourist destinations and the inclusion of hotel construction in those destinations as infrastructure projects will create new opportunities for private investment and tourism-led growth.
The government is also working on the announcement of the next round of the National Infrastructure Pipeline (NIP), as indicated in the last budget, by engaging with ministries to identify new projects. Although the capex allocation in the latest budget is only marginally higher than the previous one, the long-term emphasis on infrastructure development as a key growth enabler is expected to continue.
At the regulatory level, positive steps have been taken to strengthen the framework for infrastructure financing. The latest RBI guidelines on project finance aim to bring greater uniformity in lending practices and ensure stronger discipline in the sanctioning, disbursement and monitoring of projects. Notably, the final guidelines have eased provisioning norms compared to the earlier draft, providing much-needed relief to lenders, while still maintaining prudential safeguards.
“The asset monetisation plan has been reasonably successful. It has enabled the recycling of capital, bringing in private investment while freeing up public resources for infrastructure creation.” Jyoti Prakash Gadia
Mukul Modi
The central government has taken several initiatives in the past decade, such as PM Gati shakti, the National Infrastructure Pipeline (NIP), the Bharatmala Pariyojana, the Sagarmala Pariyojana, and RC-UDAN to spur infrastructure financing. All these initiatives have been instrumental in increasing central government financing by more than fourfold as a percentage of GDP. When compared to total capital expenditure, including private expenditure, it has risen from Rs 530 billion in FY 2014 to Rs 3.01 trillion in FY 2024. This growth is also reflected in the physical development of quality infrastructure over the past decade:
- National highway network – 1.5 times
- National highway stretches with more than 4/6 lanes – 2.6 times
- High-speed corridors – over 20 times
- National highway construction pace – 2.8 times
- Number of operational airports – 2.1 times
- Cargo handling – 1.9 times
- Total operational metro rail network – 4 times.
Further, the Reserve Bank of India (RBI) has come out with a revised circular on project financing, which is likely to have a bearing on overall infrastructure financing. In addition, the Securities and Exchange Board of India has proposed increasing the permissible investment limit for mutual funds in real estate infrastructure trusts (REITs) and infrastructure investment trusts (InvITs). This is likely to provide more diversified investment options for mutual funds, and increase the availability of funds for InvITs and REITs.
Prashant Murkute
Given the superior multiplier impact on the economy, enabling infrastructure development has been a priority of the government, and it has done a commendable job in ensuring that an adequate supply of capital is available for infrastructure projects. Whether it is in terms of providing increased gross budgetary support to infrastructure segments or addressing investor/lender concerns, the government has been open to suggestions and has been fairly swift in execution. Schemes like the Revamped Distribution Sector Scheme, Land Pooling Scheme, Scheme for Harnessing and Allocating Koyala Transparently in India, market and grid reforms, Deendayal Upadhyaya Gram Jyoti Yojana and Pradhan Mantri Sahaj Bijli Har Ghar Yojana have allayed stakeholder concerns and led to increased private capex as well as infrastructure financing in the segment.
Other important measures relate to enabling the recycling of capital (both government and private capital) via monetisation and deepening of the real estate investment trust (REIT) and infrastructure investment trust (InvIT) markets. This has enabled the matching of risk appetite with long-term, stable returns chasing capital to replace the initially invested capital, allowing for leaner balance sheets and facilitating further infrastructure spends.
Regulators also deserve much of the credit for this, as they are working in tandem with lenders and the industry. The government is also working towards deepening the capital market, which is expected to benefit the infrastructure sector. The recent release of the revised partial credit enhancement framework is a step towards the same. These guidelines addressed some major concerns from the previous version.
Virender Pankaj
Infrastructure development is the backbone of India’s march towards Viksit Bharat, and infrastructure 
financing plays a crucial role therein. Several initiatives have been rolled out by the government in this direction. The Late Payment Surcharge (LPS) scheme has been effective in improving the overall health of power discoms and has helped bring down their receivables. Similarly, stable policies for third-party and group captive green energy have facilitated growth in this segment on the corporate side.
Regulatory reforms by the Securities and Exchange Board of India (SEBI) and the Reserve Bank of India (RBI) have paved the way for attracting further investments. The streamlining of InvIT regulations has helped channelise substantial capital into various sectors. A supportive policy regime, along with a robust underwriting and credit/risk management framework, has helped Aseem Infrastructure maintain pristine asset quality, with zero non-performing assets (NPAs) since its inception.
Under the RBI (Project Finance) Directions, 2025 (effective October 1, 2025), the effective provisioning requirements have gone up by 150 per cent, from 0.4 per cent to 1 per cent. This raises the capital charge for lenders, compresses yields on projects, and may curb lenders’ appetite for greenfield finance.
From a regulatory perspective, infrastructure financing demands specialised oversight. Regulations should be crafted with extensive stakeholder consultations, including from the private sector and global players. It is imperative to align with global standards, leveraging available sector-wise rating data using artificial intelligence (AI) and machine learning (ML) for transparently disclosing sector-wise defaults and loss given default data. Boards could then decide on provisioning requirements based on sectoral exposure and the rating of underlying portfolios, instead of applying a one-size-fits-all approach, which may prove to be too less or too much for different sectors going forward. Also, predictability and consistency in regulations are important to attract global capital into infrastructure lending, as returns are modest, and stability of returns is key to attracting private capital.
What has been the experience with asset monetisation so far? Which new sectors appear promising for future monetisation?
Jyoti Prakash Gadia
The government’s asset monetisation plan has been reasonably successful so far. It has enabled the recycling of capital, bringing in private investment, while freeing up public resources for new infrastructure creation.
Looking ahead, significant opportunities still exist, and Phase II of the plan is now planned with an estimated target of Rs 10 trillion. Beyond highways under the toll-operate-transfer (TOT) model, new opportunities are emerging in sectors such as mining, power transmission, railways and civil aviation, which appear particularly promising for future monetisation.
Mukul Modi
The GoI has also introduced innovative models for recycling of assets to generate capital for further expenditure on infrastructure, such as the National Monetisation Pipeline (NMP), TOT schemes, and InvITs/REITs. Against a five-year target of Rs 6 trillion for the NMP, Rs 2.3 trillion was raised in the first two years itself. Among the major sectors, the road and coal sectors made major contributions of Rs 970 billion in FY 2024 itself. The sector-wise break-up of achievements under the NMP in FY 2024 is given in the table.
Similarly, the National Highways Infra Trust, the InvIT of the National Highways Authority of India (NHAI), has successfully raised approximately Rs 183.8 billion in the fourth round. Overall, the total realised value across the four rounds stands at over Rs 460 billion.
In the coming years, it is expected that some social sector infrastructure projects could also reach maturity for monetisation. Furthermore, the monetisation efforts of Indian Railways may bear fruit in the coming years.
Prashant Murkute
Among the infrastructure segments, only the roads sector has been able to partially achieve the desired results via monetisation due to the experience and ability of the National Highways Authority of India to handle stakeholder concerns. Its approach has been pro-investment, with clear roadmaps for asset monetisation and well-defined pipelines and timelines, enabling investors to plan better and identify attractive investment opportunities. The roads sector has achieved about 85 per cent of the National Monetisation Pipeline-I target of Rs 1.6 trillion. However, there is an opportunity for the railways sector to improve its scale, as there is an underachievement of 81 per cent against a target of Rs 1.52 trillion.
In the railways sector, there is a need to create an environment conducive to private investment, as this has been the major cause for low activity. An improvement of structural frameworks, as well as the formation of an independent regulatory body and ensuring returns to the developers could improve activity in the railways sector. Areas such as freight handling hold the promise of attracting capital, driven by infrastructure improvements, adequate returns, investor interest and efficiency gains.
Other notable sectors include industrial warehousing, power transmission and power generation. In most developed markets, Grade A warehousing stock is under the REIT/InvIT structure; in contrast, only 12-15 per cent of India’s Grade A stock is under REITs, making the Indian warehousing space highly promising for monetisation.
Virender Pankaj
The National Monetisation Pipeline (NMP) comprises a robust pipeline of assets worth approximately Rs 6,000 billion, of which around Rs 3,900 billion has been mobilised so far by leasing out brownfield public assets. This demonstrates the private sector’s appetite for core infrastructure assets. In the roads sector, TOT bids have seen robust demand from private and global capital.
Recycling capital from operational assets is an effective non-tax avenue of revenue generation to fund greenfield projects. Clear governance frameworks and competitive bid design are critical to achieving higher monetisation targets.
In a capital-starved nation, we need to clearly define the role of the public and private sectors. I recommend that any sector or asset class with a clear potential to attract private capital should not be actively pursued by the public sector, as the capital generating ability of the public sector is limited. Enormous amounts of global capital are available, provided the risk-return framework is stable and positive. For example, large issuances by the National Highways Authority of India’s (NHAI) InvIT may end up unintentionally replacing easily available private capital for TOT projects.
The emergence of new sectors depends on balancing risk and reward, fostering transparent governance, and ensuring bankable cash flows. Some of the potential segments are warehousing and logistics, and digital and telecom infrastructure assets. The redevelopment of railway stations bundled with commercial complexes and logistics terminals, urban transit hubs, and metro – where retail and passenger fee streams can be tapped – could unlock significant value.
What steps are needed to revitalise private sector participation in infrastructure development? What are some of the emerging sources of funding?
Jyoti Prakash Gadia
To revitalise private sector participation in infrastructure, the next round of reforms must focus on creating sector-specific incentives and widening support schemes. Incentive mechanisms on the lines of the production-linked incentive model in manufacturing can be extended to other sectors. Additionally, the viability gap funding scheme could be widened, particularly for sectors such as offshore wind projects and battery energy storage systems.
On the funding side, new channels are steadily emerging alongside traditional bank lending. The National Bank for Financing Infrastructure and Development and the National Investment and Infrastructure Fund are being scaled up to mobilise both domestic and global institutional capital. Multilateral agencies such as the Asian Infrastructure Investment Bank and BRICS New Development Bank are also expanding their private sector pipelines in India, while state-level public-private partnership models are supporting urban and regional infrastructure.
Mukul Modi
While the importance of quality infrastructure for a growing country like India cannot be over-emphasised, the availability and flow of capital, both debt and equity, will ultimately determine the pace of infrastructure development. In this context, capital, especially private capital, more often than not, follows the allure of commercial returns rather than being driven by any social necessity. Therefore, any initiative to improve private sector participation in infrastructure development must focus on improving the commercial attractiveness of the sector. Some of the initiatives needed for revitalising private sector participation in the infrastructure sector could be:
- Institutional framework for faster recycling of assets: Infrastructure projects generally have long gestation periods and even longer payback periods. In such a situation, contributors of capital, both debt and equity, are often stuck with a project for a long period, often up to 25-30 years, even as the risk profile of the project keeps improving over the project life, qualifying it for newer classes of investors. In such a scenario, an institutional framework to recycle debt as well as equity over the project life is sorely needed. Encouragement of take-out financing, substituting debt through other instruments such as partial credit enhancement-backed bonds may provide an exit for lenders. Similarly, facilitating mid-way exit for equity investors through InvITs, IPOs and TOTs, backed by institutional support, may go a long way in freeing up private capital for new projects.
- Improvement in the arbitration and dispute resolution framework: Infrastructure projects involve a complex web of interwoven commercial contracts, which often lead to disagreements and disputes. One of the challenges faced by private developers in India is the protracted nature of commercial disputes and the uncertainty associated with them. The recent dispute between Delhi Airport Metro Express Private Limited and the Delhi Metro Rail Corporation (DMRC) is one such example. A simpler, predictable and time-bound arbitration mechanism would improve investor confidence while reducing the risks associated with infrastructure projects. In this regard, proposed amendments to the Arbitration and Conciliation Act may provide much-needed relief.
- Balanced concessions under the PPP mechanism: While continuous attempts are being made to improve the existing public-private partnership (PPP) framework, in some cases, the concession agreements appear to be tilted in favour of the concessioning authority. As a result, private parties are either inadequately compensated for the risks or have responsibilities that they are ill-equipped to handle. Balanced concession agreements with appropriate distribution of responsibilities and risks could improve private sector participation.
- Avenues/Instruments for wider participation: The GoI has made policy and regulatory changes to introduce new financing products or widen the ambit of existing ones for the infrastructure sector. Surety bonds are one such instrument that has emerged as an alternative for project developers. InvITs and REITs have emerged as vehicles for attracting investments from institutional investors such as pension and insurance funds for infrastructure projects. As per the RBI, by March 2024, REITs and InvITs had raised Rs 1.3 trillion. Another such instrument could be interest rate swaps, which may find traction with players seeking a stable interest rate regime. Further, instruments such as partial guarantees and first loss protection could de-risk infrastructure projects, making them attractive to a certain class of investors, thereby encouraging more developers to pursue alternative funding routes.
Prashant Murkute
Private investment in infrastructure has remained sluggish at 5-8 per cent of the total infrastructure capex over the past seven years compared to 46 per cent during 2009-13. There is limited private capacity to undertake project execution risk, given the long gestation period and the risk of delays. De-risking the PPP model with adequate safeguards in case of termination is needed to ensure that not only debt but also equity investments are somewhat protected for circumstances beyond the control of the concessionaire. Private investment seeks predictability for investment. Inconsistent policies across different states or improper handling of change in law events, apart from delays in approvals, become a source of regulatory risk, which dampen the attempts to attract private capital.
Many countries are tapping infrastructure credit guarantee funds for projects of strategic importance, covering execution and regulatory risks, which considerably reduces the credit risk. The cost of a guarantee is offset by the lower credit risk and financing costs. Further, there is a need for funding that matches the economic tenor of infrastructure projects. Pension and provident funds remain important sources of long-term capital, particularly for better-rated projects with predictable cash flows.
Surety bonds from insurance companies are also emerging as an alternative to traditional bank guarantees, but it will take time for the market to adopt the product. The establishment of development finance institutions like the National Bank for Financing Infrastructure and Development is emerging as another source of funding.
Virender Pankaj
It is very interesting to note that the top 10 non-banking finance companies (NBFCs) contribute approximately 55 per cent of financing to the infrastructure sector, while all banks – private, public and foreign – provide only 45 per cent. Of these NBFCs, seven are classified as NBFC- Infrastructure Finance Companies (NBFC-IFCs). It is worth noting that Aseem Infrastructure Finance Limited is the only privately managed infrastructure lender in the country, which is a concerning sign.
India’s ambitious infrastructure development plan cannot be met by public capital alone. Reviving private sector interest is imperative to the success of this goal. This hinges on reducing perceived risks, speeding up approvals, and establishing standardised public-private partnership (PPP) frameworks, including model concession agreements, clear risk allocation, and escrow mechanisms. Strong risk mitigation and streamlined regulatory approval frameworks are also important. Approvals and land acquisitions need to be fast-tracked to cut lead times.
There has not been significant momentum for green bonds, primarily due to the lack of pricing arbitrage, low appetite in the secondary market, and the absence of compelling regulations stipulating investments in such instruments.
Regarding municipal and social infrastructure bonds, while early results have been encouraging, they have not taken off at scale. The sanctity of contracts, strong structures and payment mechanisms, and backing from state governments in the form of support or guarantees are critical for their success. While SEBI is continuously taking steps to develop the bond market and increase retail participation, liquidity remains a key deterrent. Market-making plays a vital role and needs to be addressed to ensure vibrant participation in the bond market.
Currently, most benefits are extended only to public sector issuers. For example, the issuance of tax-free bonds has been a key ask by private infrastructure lenders too.
Talking about emerging sources of funding, there has been a rise in the capital pooled from ultra/high net-worth individuals (HNIs) and family offices through wealth management channels, funding infrastructure projects. Global capital, once harnessed through aligned policies and regulations, can be a game changer to plug the gap and boost innovation while reducing costs for infrastructure users (the public).
What are the key challenges and how can these be addressed?
Jyoti Prakash Gadia
One of the key challenges relates to dispute resolution and litigation, which continues to dampen investor confidence. Project disputes stemming from land acquisition, environmental clearances and inter-agency misalignment frequently delay execution and tie up working capital.
A multi-pronged approach is needed, starting with wider adoption of alternative dispute resolution mechanisms such as mediation and arbitration. In parallel, creating specialised tribunals and a strong emphasis on clearer contracts, aligned responsibilities and greater transparency can cut delays and build a more supportive ecosystem for investment.
Mukul Modi
While significant strides have been made in the infrastructure sector in India, some worrying trends continue to persist. Some of the issues that still beleaguer the sector are project execution-related challenges, and consequent time and cost overruns, which erode returns for private investors. As per data from the Ministry of Statistics and Programme Implementation, infrastructure projects accounted for 95 per cent of all delayed projects in terms of numbers in FY 2024 (that is, 743 out of 779 projects). Furthermore, many infrastructure projects are often aspirational, having optimistic revenue projections that lead to underperformance and delinquency. For example, in FY 2024, out of nine urban metro systems in India, seven reported average ridership lower than their estimates. The long-drawn, time-consuming, unpredictable litigation and dispute resolution regime is another challenge in infrastructure development in India. Further, land acquisition delays potentially set back project timelines.
While attempts are being made to address these issues, one important solution could be carrying out a robust techno-economic viability assessment during the planning stage itself to estimate the revenue-generating potential and identify any viability support required for the project. Similarly, a single-window approval process would reduce instances of time/cost overruns substantially. A faster dispute resolution system could be another step in this direction.
Prashant Murkute
Apart from limited participation by the private sector, there are a few other challenges, including:
- Availability of hindrance-free RoW and clearances: In the roads sector, while 80 per cent of land may be available, it is often in patches. The absence of hindrance-free right of way (RoW) and the lack of sand availability have been major issues hampering construction schedules. As per the Ministry of Road Transport and Highways’ Demand for Grants (2025-26), tabled in March 2025, around 35 per cent of all project delays resulted from protracted land acquisition disputes, often driven by inaccuracies in land records, resistance from local stakeholders and prolonged compensation negotiations, while another 30 per cent of project delays were due to delays in obtaining railway clearances, particularly for road over bridges and underpasses.
- Abrupt shifts in government policies and inconsistencies within state policies: Although infrastructure projects have relatively better loss given default ratios, precedents of rejection of resolved cases under the Insolvency and Bankruptcy Code (IBC) could undermine the credibility of the process and deter future resolution procedures. Similarly, in the solar energy sector, open access and unsubsidised rooftop projects were exempted from the Approved List of Models and Manufacturers regulation as per the February 2024 directive, but this exemption was removed in April 2024, leading to a sudden shift in the plans of stakeholders. In addition, the absence of a unified policy in the country for executing power projects leads to tedious liaison processes.
Current regulations lack creditor protection in InvIT structures: Current regulations do not strike a fair balance of risk and reward between lenders and investors. Lenders are not recognised as financial creditors to InvITs and therefore cannot initiate a change in sponsor or transfer of assets in case of stress. Lenders have only indirect access to cash flows, and bankers cannot take InvITs to the IBC for initiating the recovery process.
Virender Pankaj
Let us first look at the renewable energy sector. India has achieved approximately 156 GW of combined solar and wind energy capacity as of March 2025. Policy incentives under schemes such as the PM Surya Ghar and the Pradhan Mantri Kisan Urja Suraksha Evam Utthan Mahabhiyan Yojana (PM-KUSUM) have given an impetus to this growth. Despite this surge, challenges persist in this sector. India’s installed battery storage capacity is a mere 505 MWh, which needs to be scaled up multi-fold to provide round-the-clock green energy, a solution that would be far more economical for consumers in the long run. Land acquisition remains a key challenge as far as project execution is concerned.
In the roads sector, the Ministry of Road Transport and Highways (MoRTH) has built 10,660 km of roads this year, supported by a Rs 2.87 trillion budget allocation. However, delivery hurdles persist. Land acquisition delays and protracted environmental clearances delay nearly one-fifth of projects.
These challenges need to be addressed through a slew of initiatives involving multiple stakeholders. Integrated approval clearance windows can cut down project timelines. Risk mitigation instruments like the partial credit guarantees and first-loss tranches can make project finance more viable. Empowering urban local bodies to issue municipal bonds with central credit enhancements can also be a game changer.
What is the sector outlook? What will be the key drivers and disruptors in India’s infrastructure financing landscape?
Jyoti Prakash Gadia
The outlook for India’s infrastructure sector is positive, with completed, revenue-generating projects seeing strong transaction activity that is enabling capital recycling and attracting fresh investments. The sector is expected to generate a strong multiplier effect for economic growth, supported by policy momentum, private capital inflows and innovation in financing mechanisms.
A deeper and more agile bond market and wider use of credit enhancement mechanisms remain critical gaps that need to be addressed for private capital to scale further. The digital India ecosystem and adoption of innovative technologies will improve project costing and viability, even as instruments such as InvITs, alternative investment funds and infrastructure debt funds continue to play an important role in mobilising capital. Global private credit funds and climate-linked funds are also emerging as significant sources of financing.
At the same time, the absence of effective construction risk-sharing mechanisms remains a constraint, and addressing this gap will be critical to attracting broader investor participation. The upcoming government guidelines on a climate finance taxonomy are expected to catalyse investment flows into green and sustainable infrastructure.
Mukul Modi
The Union Budget for FY 2026 has allocated Rs 11.21 trillion for the infrastructure sector. This is likely to boost investments in areas like renewable energy, especially firm and despatchable renewable energy and round-the-clock, while manufacturing is also likely to see a major upsurge. Further, conventional projects like thermal, hydro and pumped storage projects will also regain momentum. Overall, the energy sector is likely to remain at the forefront. Other sectors like ports and roads may also witness renewed activity. The approval and announcement of Vadhavan Port, with an outlay of Rs 762 billion, is likely to spur activity in this space. Various GoI initiatives, such as PM Gati Shakti, the Bharatmala Pariyojana, the Digital Highways initiative and the NIP, are likely to contribute towards the growth of the sector.
Some of the key variables likely to impact the infrastructure financing landscape during the year are the ability of concessioning authorities to successfully tender and award PPP projects, especially in the renewables space, and the resolution of geopolitical and export tariff issues.
Prashant Murkute
The credit outlook for the infrastructure sector remains dependent on the momentum of government capex, along with enabling reforms to attract private capital and ensure a predictable business environment. Despite the recent uptick, central government spending on infrastructure as a percentage of GDP remains below the peers, at around 3 per cent compared to China and Vietnam at 5-7 per cent each in recent years. Greater coordination between government departments for clearances and changes to model concession agreements are expected to be key enablers in de-risking during the project execution phase.
Virender Pankaj
India’s infrastructure financing outlook is robust and transformative. The Union Budget for 2025-26 has committed a capital outlay of Rs 11.2 trillion to the infrastructure sector. Combined with the NIP, this underscores the government’s unwavering push for infrastructure development. Newer avenues like data centres, smart metering and urban infrastructure are increasingly central to this growth story. Strategic programmes like the PM Gati Shakti integrate infrastructure planning across ministries and have significantly accelerated capex, which is driving growth across multiple sectors.
Key policy initiatives are required to attract private sector players into infrastructure financing. Extending tax-fee status to NBFC-IFCs can give a major fillip in this direction. Allowing NBFC-IFCs to issue tax-free bonds can also help create a level playing field among lender classes and encourage the private sector to participate in infrastructure lending. It is imperative that the regulatory framework is made equitable across all players. For example, banks follow a credit rating-based capital allocation, whereas NBFCs allocate 100 per cent risk weightage for all assets in general.
Success hinges on navigating execution challenges, aligning the interests of stakeholders across funding layers, and effectively mobilising private capital to drive sustainable infrastructure development.
