Policy Update
Tanisha Hooda
Background
Infrastructure is a crucial foundation for India’s economic growth and social development, supporting industrial activity, employment generation, connectivity, and improved quality of life. Financing is therefore essential for ensuring a steady flow of funds for large infrastructure projects. Over the past decade, the Government has significantly increased public capital expenditure to support infrastructure-led growth and attract private investment. Public capital expenditure rose from ₹2 lakh crore in FY 2014–15 to ₹12.2 lakh crore in the Budget Estimate for FY 2026–27, highlighting the continued emphasis on infrastructure development.
At the same time, India’s infrastructure financing landscape has increasingly moved beyond reliance on government budgetary support towards a combination of public and private capital. Institutions such as the National Investment and Infrastructure Fund (NIIF) and the National Bank for Financing Infrastructure and Development (NaBFID), along with instruments such as Infrastructure Investment Trusts (InvITs) and Real Estate Investment Trusts (REITs), have contributed to expanding and diversifying sources of infrastructure finance. This broader financing ecosystem is important for mobilising long-term capital, attracting private investment, and strengthening the capacity to undertake large-scale infrastructure projects.
Within this evolving financing framework, the Government introduced the Infrastructure Risk Guarantee Fund (IRGF) in the Union Budget 2026–27 to address risks associated with the early stages of infrastructure development and construction. Infrastructure projects may face delays and uncertainty during execution, which can affect investor confidence and make financing more difficult. The Fund is intended to strengthen confidence by providing partial credit guarantees to lenders, thereby reducing financing-related risks for private developers and making infrastructure financing more secure. The mechanism is intended to facilitate greater private-sector participation and support the timely delivery of infrastructure projects.
Functioning
1. Budgetary Provision: The Infrastructure Risk Guarantee Fund (IRGF) has been proposed under the Central Sector Schemes/Projects of the Department of Economic Affairs in the Union Budget 2026–27. A provision of ₹1,000 crore has been indicated for the Fund for 2026–27. This provision is intended to provide the financial basis for the proposed guarantee mechanism, which aims to facilitate financing for infrastructure projects by enabling the Government-backed sharing of certain financing risks with lenders.
2. Partial Credit Guarantee Mechanism: Infrastructure projects generally require large amounts of long-term financing and may face uncertainties during the development and construction stages, including delays, cost overruns and execution-related risks. The Infrastructure Risk Guarantee Fund (IRGF), announced in the Union Budget 2026–27, is proposed to provide prudently calibrated partial credit guarantees to lenders. In principle, such guarantees could cover a specified portion of a lender’s potential credit risk, thereby reducing exposure in the event of repayment difficulties. However, the specific guarantee coverage, eligibility conditions and operational modalities should be stated only after confirmation from the notified guidelines or implementing framework.
3. Potential to Strengthen Private-Sector Confidence: The proposed guarantee mechanism is expected to improve the financing environment for infrastructure projects by addressing some of the risks faced by lenders. This could support greater confidence among private developers and financiers, particularly for projects involving substantial upfront investment and long-term financing. However, the extent to which the IRGF will strengthen private-sector participation will depend on its final design, eligibility criteria and implementation framework.
4. Potential to Crowd-in Private Capital : The proposed guarantee mechanism is intended to mobilise additional private capital by reducing certain risks associated with infrastructure financing. Government-backed guarantee support could facilitate financing from banks, financial institutions and other private sources rather than relying solely on direct public expenditure. The ₹1,000 crore provision, subject to verification, is intended to support the Fund; however, the extent of additional financing that may be mobilised cannot be established until the operational framework and leverage mechanism are notified.
5. Potential Contribution to Timely Project Completion : Improved access to finance could help infrastructure developers manage financing requirements during the construction phase and potentially reduce financing-related disruptions. The proposed IRGF may therefore contribute to smoother project implementation and timely completion. However, such outcomes remain prospective and would depend on the Fund’s operationalisation, coverage, eligibility conditions and uptake by lenders and project developers.
Performance
Since the Infrastructure Risk Guarantee Fund (IRGF) was introduced only in the Union Budget 2026–27, sufficient evidence is not yet available to assess its direct performance or outcomes. Therefore, the following indicators are presented as a baseline context for understanding infrastructure project execution, cost pressures, monitoring capacity and emerging infrastructure requirements. These indicators should not be interpreted as measures of IRGF performance.
1. Infrastructure Project Execution and Physical Progress: PAIMANA data provide an indication of the broader infrastructure project execution environment. The data show variation in the physical progress of major infrastructure projects, reflecting differences in the pace of project implementation.
Figure 1: Physical Progress of Selected High-Value Infrastructure Projects (%)
Source: PAIMANA Project Monitoring Dashboard, MoSPI, July 2026
The graph shows that the selected infrastructure projects are progressing at different rates. This variation provides context on the implementation challenges faced by large infrastructure projects and the potential relevance of financing and risk-management mechanisms.
2. Cost Escalation in Infrastructure Projects: PAIMANA data also indicate instances where the latest revised cost of infrastructure projects exceeds their original approved cost. Such cost increases provide a baseline indication of the financing pressures that can arise during infrastructure project implementation.
Figure 2: Cost Escalation in Selected Infrastructure Projects (%)
Source: PAIMANA Project Monitoring Dashboard, MoSPI, July 2026.
The graph shows that all three selected projects experienced cost escalation, with the NMDC Slurry Pipeline Phase-I recording the highest increase. The trend highlights how cost revisions can increase financing requirements for large infrastructure projects.
3. Expansion of Infrastructure Performance Monitoring: The PAIMANA Performance Monitoring Dashboard provides a broader data-based framework for monitoring infrastructure-sector performance. Its coverage across different infrastructure sub-sectors provides useful baseline information on the availability of standardized performance indicators.
Table 3: Number of Performance Indicators by Infrastructure Sub-Sector
| Infrastructure Sub-Sector | Number of Indicators |
| Ports, Shipping & Waterways | 62 |
| Railways | 37 |
| Civil Aviation | 31 |
| Power | 14 |
| Telecommunications | 13 |
| Roads | 8 |
| Total | 165 |
Source: MoSPI, PAIMANA Performance Monitoring Dashboard (2026)
The table shows that Ports, Shipping & Waterways has the highest monitoring coverage, with 62 indicators, followed by Railways and Civil Aviation. Power, Telecommunications and Roads have comparatively fewer indicators. Overall, the dashboard covers 165 indicators across six major infrastructure sub-sectors, providing a broader basis for monitoring infrastructure performance.
4. Growth in Key Infrastructure Indicators: The quarterly dashboard also indicates continued improvement across several infrastructure sectors, covering connectivity, transport and digital infrastructure. These indicators reflect ongoing expansion in infrastructure capacity and usage.
Figure 4: Growth in Selected Infrastructure Indicators (%)
Source: PIB, 16 July 2026.
The figure shows positive growth across all the selected infrastructure indicators. Wireless/Mobile Data Consumption recorded the highest growth, followed by Civil Aviation Cargo and Telecom Subscribers, while Mobile Towers recorded the lowest growth among the selected indicators. Overall, the figure indicates continued expansion in infrastructure usage and connectivity.
5. Expansion of Energy Storage Capacity: The projected increase in energy-storage requirements provides additional context on the emerging infrastructure financing needs associated with grid reliability and renewable-energy integration.
Table 5: Projected Energy Storage Requirement (GWh)
| Year | Projected Storage Requirement (GWh) |
| 2027–28 | 87 |
| 2035–36 | 888 |
Source: PIB, 16 July 2026.
The table shows a substantial projected increase in energy-storage requirements between 2027–28 and 2035–36. This indicates the growing need for storage infrastructure to support grid stability and accommodate higher levels of renewable energy integration.
Impact
1. Improved Access to Infrastructure Financing: The Infrastructure Risk Guarantee Fund is expected to improve access to finance for infrastructure projects by reducing a portion of the credit risk faced by lenders. By providing partial guarantees, the mechanism can make lenders more willing to finance projects involving higher levels of construction and development uncertainty. This may broaden the availability of long-term financing and complement existing institutions such as NaBFID and NIIF, which are already expanding the infrastructure financing ecosystem. The Fund therefore has the potential to strengthen the overall flow of capital towards infrastructure projects.
2. Greater Participation of Private and Institutional Investors: The guarantee mechanism could encourage greater participation of private and institutional investors by making infrastructure investments more attractive from a risk perspective. The existing expansion of instruments such as InvITs and REITs demonstrates the growing role of private and institutional capital in infrastructure financing. In this context, IRGF can complement these financing channels by reducing risks at the project-financing stage and potentially encouraging banks, financial institutions, insurers, pension funds and other investors to participate in infrastructure projects. This could help diversify the sources of infrastructure finance beyond direct government expenditure.
3. Strengthening Infrastructure Delivery and Investment Confidence: By addressing financing risks during the early stages of infrastructure development, IRGF has the potential to improve the continuity of project financing and support more predictable project execution. This is particularly relevant in a sector where delays and cost escalation can increase financing requirements, as reflected in the PAIMANA data discussed earlier. A more secure financing environment could therefore strengthen investor confidence and support the timely development of infrastructure assets.
4. Improved Credit Availability for Infrastructure Projects: The partial credit guarantee mechanism could make lenders more willing to extend credit to infrastructure projects involving substantial upfront investment, longer repayment periods and higher initial-stage risks. By reducing lenders’ exposure to project-related risks, the Fund could improve the availability of long-term credit for infrastructure developers and support the financing of projects that may otherwise face difficulty in securing adequate finance.
5. Diversification of Infrastructure Financing Sources: The IRGF could contribute to a more diversified infrastructure financing structure by supporting financing from banks, financial institutions and other private sources alongside government expenditure. This could reduce reliance on direct public funding and strengthen the role of market-based sources of long-term infrastructure finance. Over time, greater diversification could improve the resilience of infrastructure financing and support the mobilisation of capital for large-scale projects.
Emerging Issues
1. Need for Further Reforms to Mobilise Private Investment: While the Infrastructure Risk Guarantee Fund can help reduce financing risks for infrastructure projects, a material increase in private investment will also require continued reforms and ease-of-doing-business measures. Strengthening regulatory certainty, simplifying compliance requirements and improving the overall investment environment can complement the guarantee mechanism and encourage greater private-sector participation in infrastructure.
2. Ensuring Effective Utilisation of the Guarantee Mechanism: The effectiveness of the Infrastructure Risk Guarantee Fund will depend on its ability to translate the ₹1,000 crore allocation into additional private financing. Clear implementation mechanisms, appropriate risk-sharing arrangements and effective coordination with lenders can help ensure that the Fund crowds in additional capital rather than merely substituting existing sources of infrastructure finance.
3. Strengthening Manufacturing and Infrastructure Linkages: The Union Budget 2026–27 identifies manufacturing and strategic sectors such as semiconductors, rare earths, chemicals and capital goods as areas of policy focus. The proposed Infrastructure Risk Guarantee Fund (IRGF) is intended to facilitate financing for infrastructure projects by providing a risk-sharing mechanism for lenders. To establish a direct link between the IRGF and manufacturing-led infrastructure requirements, the article should cite specific Budget provisions or official supporting evidence identifying manufacturing projects or sectors that may benefit from the proposed guarantee mechanism. In the absence of such evidence, the relationship should be presented as a potential linkage rather than a direct policy objective of the IRGF.
4. Sustaining Reform Momentum Beyond the Budget: Although the Budget has introduced measures to support investment and competitiveness, several reforms may need to continue beyond annual budgetary announcements. Maintaining the momentum of structural reforms, rationalising compliance requirements and improving policy implementation can provide greater certainty to investors and support sustained private-sector capex over the medium to long term.
Way Forward
The Infrastructure Risk Guarantee Fund (IRGF) represents an important step towards strengthening India’s infrastructure financing framework by addressing credit and financing constraints associated with infrastructure projects. With a provision of ₹1,000 crore in 2026–27, the Fund is intended to support partial credit guarantees, improve access to long-term finance and encourage greater private-sector participation. Its broader objective is to strengthen the capacity of the infrastructure financing ecosystem to mobilise additional capital for large-scale projects.
Going forward, the effectiveness of the Fund will depend on its timely operationalisation and the establishment of clear implementation mechanisms. Clearly defined eligibility criteria, guarantee coverage, risk-sharing arrangements and monitoring frameworks will be important to ensure that the Fund effectively supports projects while maintaining fiscal prudence. At the same time, continued reforms, ease-of-doing-business measures and coordination between the Government, lenders and private developers will also be important to ensure that guarantee support translates into additional private capital and improved project execution.
In the broader context of New India, IRGF has the potential to support infrastructure-led growth by strengthening investment confidence, mobilising private capital and facilitating the development of critical infrastructure. Its contribution should ultimately be assessed not only through the amount of guarantees provided, but through the additional financing mobilised, improvement in project implementation and reduction in financing-related constraints. If effectively implemented, the Fund can complement India’s rising public capital expenditure and contribute to a stronger, more investment-driven and resilient infrastructure ecosystem.
References:
Press Information Bureau (PIB). (2026). Infrastructure Financing in India: Trends, Institutions, and Innovations. Government of India, 18 March 2026.
https://www.pib.gov.in/PressNoteDetails.aspx?NoteId=157846&ModuleId=3®=48&lang=1
Department of Economic Affairs, Ministry of Finance, Government of India. (2026). Notes on Demands for Grants, 2026–2027: Demand No. 30—Department of Economic Affairs. Union Budget 2026–27.
https://www.indiabudget.gov.in/doc/eb/sbe30.pdf
Ministry of Statistics and Programme Implementation (MoSPI). (2026). PAIMANA – Infrastructure & Project Monitoring. Government of India.
https://paimana-proj.mospi.gov.in/
MoSPI. (2026). Quarterly release of Performance Monitoring Dashboard of Infrastructure Sector in India. PIB, Government of India, 16 July 2026.
https://www.pib.gov.in/PressReleasePage.aspx?PRID=2285365®=48&lang=1
Crisil Intelligence, 2026, The Long Haul Gambit: Union Budget 2026–27, Impact Note, February 2026.
https://intelligence.crisil.com/en/homepage/what-we-think/all-our-thinking/reports/2026/02/the-long-haul-gambit.html
About the Contributor:
Tanisha Hooda is a Research Intern at the Impact and Policy Research Institute (IMPRI) and a B.A. (Hons.) Economics graduate from Manav Rachna International Institute of Research and Studies (MRIIRS), Faridabad. Her research interests include competition policy, digital economy, public policy, and economic development, with a focus on analysing the socio-economic implications of emerging policy frameworks.
Acknowledgement:
The author extends sincere gratitude to the reviewers, Anamika P K and Ameya Sushilchandra Satam , and the IMPRI India team for their valuable guidance, support, and review of this Policy Update.
Disclaimer
All views expressed in the article belong solely to the author and not necessarily to the organization.
Reviewed by Anamika P K and Ameya Sushilchandra Satam
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