India faces a significant challenge in funding its ambitious infrastructure development plans, requiring an estimated $4.5 trillion of investment by 2030 to sustain its economic growth and improve community well-being. This demand is driven by rapid urbanization, a growing middle class, and the need for improved transport networks, urban housing, renewable energy, and digital connectivity. To address this substantial infrastructure investment gap, experts are calling for increased credit flow and deeper capital market commitments.

The Shift in Financing and the Role of Pension Funds

Traditionally, banks have been the primary source of infrastructure financing in India. However, a shift is occurring, with pension and insurance funds expected to play a larger role. These funds are better suited for long-term projects due to the nature of their liabilities. Sivasubramanian Ramann, chairman of the Pension Fund Regulatory and Development Authority (PFRDA), has emphasized the importance of deeper capital market commitments to infrastructure projects. The PFRDA is open to facilitating more investment in the infrastructure space, particularly with the government launching a credit enhancement program for infrastructure bonds.

Addressing Hurdles and Enhancing Credit Flow

Several factors have historically constrained credit flow to infrastructure projects. These include high leverage, low credit ratings, and long project tenors, which make infrastructure companies heavily reliant on bank loans. To overcome these hurdles and encourage bond issuance, wider use of partial credit enhancement schemes and securitization of infrastructure loans are being explored. The government, on September 18, 2025, launched a program to boost the rating of infrastructure bonds, aiming to attract investors like pensions and life insurance companies that typically invest in higher-rated instruments. This program, operated by the National Bank for Financing Infrastructure and Development (NaBFID), will allow the agency to guarantee up to 20% of the bonds, reducing borrowing costs for issuers and attracting a broader range of investors.

Government Initiatives and Regulatory Reforms

The government is actively taking steps to address the infrastructure financing gap. The central government has allocated a capital expenditure of ₹11.21 lakh crore, or 3.1% of GDP, for the current fiscal year. Additionally, a ₹20,000 crore risk guarantee fund is being planned to cover losses due to policy uncertainty and other non-commercial risks, which will be managed by the National Credit Guarantee Trustee Company. The Reserve Bank of India (RBI) has also taken measures to ease funding constraints, including lowering provisioning on under-construction project loans from 5% to 1%. Furthermore, the PFRDA has introduced the Multiple Scheme Framework (MSF) for Non-Government Sector Subscribers under NPS, providing greater flexibility in investment choices.

The Path Forward: Investor-Centric Approach and Global Standards

To unlock global funding for infrastructure targets, experts advise India to prioritize investors in its strategy. This involves aligning with investor priorities regarding risk, value, and returns, while also addressing outdated perceptions of India's infrastructure sector. Adopting globally recognized frameworks and principles can make Indian infrastructure projects more appealing to international investors. Enhancing transparency and risk management is also crucial to building investor confidence.

India's infrastructure sector presents immense opportunities, and the government is committed to developing world-class infrastructure to support the country's economic growth and development goals. By addressing funding gaps, leveraging technology, and ensuring sustainable practices, India can transform its infrastructure into a catalyst for economic growth and global competitiveness. The convergence of government initiatives, regulatory reforms, and a focus on attracting long-term investment from pension funds and other sources will be critical in bridging the infrastructure investment gap and propelling India towards its economic aspirations.