Government plans Rs 20,000 crore guarantee fund to boost infra projects

The government plans to set up a Rs 20,000-crore risk guarantee fund for the infrastructure sector to boost investments, people privy to the development said. It is in talks with stakeholders, including public and private financial institutions, for the proposed fund that will cover losses caused by policy uncertainty and other non-commercial reasons, they said.

The fund is expected to increase credit flow into big infrastructure projects by encouraging lenders to take larger exposures. Managed by National Credit Guarantee Trustee Company, it will underwrite development risks of new projects.

Discussions on Risk Premium
The government will provide the initial corpus. “The idea is to cover risks arising due to policy uncertainty and factors outside the control of project developers,” said an official aware of the matter. The fund will only take up new infrastructure projects and cover development risk, which may include delays and cost overruns on account of non-commercial risks, he added.

While the discussions are in preliminary stages, National Bank for Financing Infrastructure and Development (NaBFID) is expected to submit its recommendations for the proposed fund within two weeks. “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, the conditions under which guarantee invocation will trigger and any other additional safeguards,” a bank executive said.

The proposed fund will help mitigate the risk of the project developers in cases where projects are delayed due to land acquisition, environmental clearance, and other extraordinary circumstances, he said. NaBFID, set up in 2021, is a specialised development finance institution aimed at supporting India’s infrastructure sector. Another executive from a staterun financial institution said it is important that developers also pay a premium so that it ensures accountability while covering external risks.Issues Regarding Financing
India requires an investment of around $4.5 trillion by 2040 to develop the 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. In a statement on Thursday, the finance ministry said financial services secretary M Nagaraju held a meeting to discuss issues related to financing in the infrastructure sector.