The Indian government is gearing up to address a persistent funding crunch in the infrastructure sector with a major budgetary intervention. According to officials familiar with the matter, the upcoming Union Budget for the fiscal year 2026 is likely to announce a ₹25,000 crore risk guarantee fund. This initiative aims to underwrite development risks in large-scale projects, thereby encouraging banks and financial institutions to increase credit flow and revive stalled private investment.
Addressing the Core Financing Challenge
The proposed fund, modelled on successful credit guarantee schemes for micro and small enterprises, seeks to tackle the root cause of hesitation in infrastructure lending. Persistent issues like project delays, cost overruns, and policy uncertainties have long made banks wary of extending loans. The fund will act as a safety net, covering a portion of the loans extended to infrastructure projects for a nominal fee. This credit enhancement tool is expected to significantly reduce the perceived risk for lenders.
The blueprint for this fund was submitted to the finance ministry by a committee under the National Bank for Financing Infrastructure and Development (NaBFID). It is anticipated that the National Credit Guarantee Trustee Company (NCGTC) will manage the fund's operations. The initial corpus is slated to come from the Union Budget, with the finance ministry also in discussions with both public and private sector financial institutions to participate.
Why This Fund is Critical for India's Growth
The move comes at a crucial juncture. Government estimates indicate that India requires a staggering $2.2 trillion in infrastructure investment by 2030 to support its ambition of becoming a $7 trillion economy. However, the current financing landscape is fraught with challenges. Experts point out that while the capital expenditure target for FY26 is ₹11.21 trillion, actual flows are constrained by asset-liability mismatches in banks and high borrowing costs from non-banking financial companies (NBFCs).
Vivek Iyer of Grant Thornton Bharat noted that funding hesitance stems more from non-commercial risks than growth prospects. He stated that a well-structured public-private partnership for the guarantee fund could balance efficiency with governance. The fund's success, however, will hinge on effective risk pricing and underwriting to keep costs viable for projects.
Ground Reality: Stalled Projects and Delays
The urgency for such a mechanism is underscored by hard data on project delays. In the roads and highways sector alone, 574 National Highway projects awarded in the last five years, with a cumulative cost of about ₹3.60 trillion, have missed their original deadlines. Official data reveals over 300 projects are delayed by up to a year, 253 by one to three years, and 21 by more than three years.
Furthermore, 133 projects worth ₹1 trillion are in a state of limbo, with construction yet to begin due to pending clearances, land acquisition issues, and delays in achieving financial closure. The proposed risk guarantee fund aims to break this logjam by making financing more accessible, even for projects facing initial hurdles.
Manish Aggarwal of Deloitte India highlighted the bond market angle, explaining that most institutional debt in India chases AA or higher-rated instruments. A credit enhancement facility can bridge this gap by raising the rating of a project's bonds, making them attractive to a wider pool of investors. While past experiments with such facilities faced prohibitive costs, the new government-backed initiative holds promise if priced correctly.
As the Budget formulation enters its final stages, this ₹25,000 crore risk guarantee fund emerges as a potential game-changer. By mitigating lender risk, it seeks to unlock capital, accelerate project completion, and build the foundational infrastructure necessary for India's next phase of economic growth.
