Government planning ₹20,000cr risk guarantee fund to boost infrastructure investments
What's the story
The Indian government is planning to set up a ₹20,000 crore risk guarantee fund for the infrastructure sector. The move is aimed at boosting investments by covering losses due to policy uncertainty and other non-commercial reasons. The National Credit Guarantee Trustee Company will manage the proposed fund, which is expected to increase credit flow into large infrastructure projects by encouraging lenders to take larger exposures.
Project assurance
Fund will cover development risk
The ₹20,000 crore risk guarantee fund will underwrite the development risks of new projects. The government will provide the initial corpus for this initiative. An official familiar with the matter told The Economic Times that, "The idea is to cover risks arising due to policy uncertainty and factors outside the control of project developers." The fund will only take up new infrastructure projects and cover development risk, including delays and cost overruns due to non-commercial risks.
Future steps
NaBFID to submit recommendations within 2 weeks
The National Bank for Financing Infrastructure and Development (NaBFID) is expected to submit its recommendations for the proposed fund within two weeks. A bank executive said, "NaBFID will now hold more discussions on in what proportion the risk premium will be paid by the authority and the developer, the kind of risk premium to be paid, conditions under which guarantee invocation will trigger, and any other additional safeguards."
Risk mitigation
Proposed fund to help mitigate project developers' risks
The proposed fund will also help mitigate the risk of project developers in cases where projects are delayed due to land acquisition, environmental clearance, and other extraordinary circumstances. NaBFID was set up in 2021 as a specialized development finance institution to support India's infrastructure sector. An executive from a state-run financial institution said it's important that developers also pay a premium so that it ensures accountability while covering external risks.
Investment requirement
India needs $4.5 trillion investment by 2040 for infrastructure development
India needs an estimated $4.5 trillion investment by 2040 to develop infrastructure for sustaining its economic growth. The central government has earmarked a capital expenditure of ₹11.21 lakh crore, or 3.1% of GDP, for the current fiscal year. The finance ministry recently said financial services secretary M Nagaraju held a meeting to discuss issues related to financing in the infrastructure sector.