The Centre is working on a partial credit guarantee scheme to de-risk infrastructure financing, with plans to cover projects worth up to Rs 5 lakh crore over the next few years, sources told FE.
The proposed mechanism would offer a limited guarantee—likely in the range of 5–10% of project costs—to improve lender confidence and ensure smoother funding flows during vulnerable execution phases, sources said.
At the core of the plan is the proposed Infrastructure Risk Guarantee Fund, which will support projects facing cost overruns or temporary liquidity stress during construction and the initial stabilisation period after completion. The guarantee cover is expected to be available for a short tenure of around 2–3 years, targeting precisely the phase where risks are highest, and revenues are yet to materialise.
The government is considering an initial corpus of about Rs 10,000–15,000 crore to operationalise the scheme. Preliminary consultations have already been held with banks and project developers to fine-tune the structure and ensure it addresses real financing bottlenecks.
Execution Gap
Infrastructure projects typically face heightened risks during the construction phase, when delays—often linked to land acquisition, regulatory clearances, or external factors—can lead to cost escalations. During this period, projects generate no revenue but still require debt servicing, either through promoter support or funded interest mechanisms. In many cases, lenders become cautious about extending additional funding when costs rise beyond initial estimates, leaving projects stranded despite being close to completion.
The proposed guarantee aims to bridge this gap. By backing a small portion of additional funding requirements—often in the range of 5–10% needed to complete projects—the government hopes to encourage banks to continue lending in such situations. This, in turn, could prevent viable projects from stalling due to temporary financial stress.
The scheme is expected to cover a wide range of infrastructure sectors, including roads, power, renewable energy such as solar and wind, and even emerging areas like data centres. Social infrastructure—such as hospitals and educational institutions—may also be included under its ambit.
Scaling Beyond Roads
A key rationale behind the initiative is that once infrastructure assets cross the construction and early stabilisation phases, they tend to generate steady and predictable cash flows over long periods, often spanning 20–25 years. The government’s intervention, therefore, is designed to be targeted and time-bound—focused only on helping projects reach that stable phase rather than supporting them throughout their lifecycle.
The proposal builds on the announcement made in the FY27 Budget, where the government outlined plans to establish an Infrastructure Risk Guarantee Fund to provide prudently calibrated partial credit guarantees to lenders, aiming to boost private sector participation in infrastructure development.
Launched in 2019, the National Infrastructure Pipeline anchors India’s growth strategy by crowding in investment across 13,000 projects worth Rs 185 trillion. With a strong transport focus and expanding sectoral coverage, it reflects a scale-up in infrastructure push, though timely execution remains critical to fully realise its growth potential.