by Ashutosh Raravikar and Abhishek Ranjan^{^}

During the last decade India has placed a policy thrust on development of infrastructure with an integrated and inclusive approach. In this context, this study analyses the relationship between infrastructure and economic growth by creating indices of infrastructure using different methods. The results indicate that infrastructure has positively and significantly impacted the GDP growth. Hence the policy focus on expansion in broad-based infrastructure would take the growth story ahead. Besides, given the large requirement of investment in infrastructure, exploring suitable financing options and strategies would enable filling the infrastructure gap faster.

Introduction

India aims and aspires to become a developed nation by 2047. It has emerged as a fastest growing economy in the world. Of late, there has been a policy thrust on expansion in infrastructure. Infrastructure is a significant factor for broad-based and rapid growth as it generates the facilitative framework from both supply and demand side. Infrastructure is an engine that could drive the Indian growth express further ahead. This article delves into various dimensions of infrastructure and attempts to explore and establish the empirical relationship between infrastructure and economic growth in India. It also analyses various ways for financing the infrastructure. Section II takes an overview of the existing literature on the subject in both global and Indian context. Section III explains the mechanism between infrastructure and growth as well as welfare and cites global experiences. Section IV encapsulates the development of infrastructure in India, especially the recent phase of its rapid growth with a reoriented approach. The results of our empirical work on infrastructure and growth in India are explained. Section V deals with the approaches on financing of infrastructure. Section VI concludes.

II. Review of Literature

The need for development of infrastructure for long term growth of economy has been pointed out in several research studies across the world. The research has brought to the fore the significant role of public investment and its positive impact on productivity and growth of national income. Munnel (1992) showed that recession in America during 1970s was associated with reduction in government capital expenditure. Agenor (2010) propounded that public investment in physical and social infrastructure enabled a country to attain steady economic growth over long run. The research works by Bougheas and others have also argued the positive relation between infrastructure and growth. David Aschauer (1993) advocated the need for using fiscal policy as an instrument for creation of infrastructure through public expenditure. Paul and Schwartz (1996) argued that investment in infrastructure positively affected the rise in productivity. However, some of the works found no or inconclusive or weak relation between the two. For instance, Elburz et al., (2017) found no relation between investment on infrastructure and output.

Research studies pertaining to Indian economy indicate positive relationship between the two. Dash and Sahoo (2010) argued that creation of infrastructure positively and significantly impacted the output growth in Indian economy. Kumari and Sharma (2017) propounded that in case of India, the infrastructure development favourably impacted economic growth with a lag of 1-2 years. Rath et al., (2022) showed an important and positive relation between states’ capital outlay and gross state domestic product (GSDP) in India and that the present year’s decision was impacted by past values of capital outlay. Mishra et al., (2017) found significant association between economic growth and capital outlay. Thus, the significance of expenditure, especially government expenditure, on investment in infrastructure was advocated for GDP growth.

III. Infrastructure, Growth and Welfare

Infrastructure is a set of physical structures that facilitate economic activity and support the capacity of economic operations. It consists of “physical facilities, institutions and organisational structures or the social and economic foundations for the operation of the society” (UNCTAD, 2008). Infrastructure is also the social overhead capital that comprises basic services for functioning of productive activities. It has two components - economic or physical and social. The former mainly consists of the means of transport and communication that boost economic activities, and the latter comprise of educational institutions, healthcare units etc., that impact the welfare of people. Lack of sufficient transport network causes inadequate availability of raw materials and hinders movement of finished products to markets. Farmers get lower price causing reduction in rural incomes and hence percolation of growth. Physical infrastructure reduces cost of production and increases factor productivity. Development of infrastructure involves building up of assets needed by the country including housing, transportation, telecommunication, sanitation and commercial establishments.

Technology has been a revolutionary enabler providing the last mile connectivity of government benefit schemes and delivery of goods and services to the targeted beneficiaries. Digital infrastructure consists of physical and software-based set up or arrangements that are essential for delivery of goods and services, remote works and other needs. These include data centres, information technology (IT) staff, fibre, hardware, software, operating systems etc. Digital infrastructure is a core utility that contributes to economic development and growth.

The quality of human life hinges on meeting the basic needs and living in a friendly and pleasant environment. This is enabled by social infrastructure. Social infrastructure involves building and maintaining the set up and facilities which support social services for attaining the human development and well-being. These comprise of education, health and social protection schemes tailored for various sections such as old people, unorganised workers and aspirational regions. Social infrastructure raises human efficiency and skills, causing rise in output.

Expenditure on infrastructure benefits the economic growth through its multiplier effects (World Bank, 2023). Expansion in infrastructure increases the output through raising productivity of factors of production as well as aggregate demand. This occurs through rise in connectivity, expediting the movement of goods and people, reduction in cost, facilitating the ease of doing business and increasing the access of people to various facilities and financial services. The public investment in infrastructure yields larger multipliers than private spending because the former has a potential to increase the productive capacity of the economy, directly as well as indirectly, through crowding in private investment, apart from its positive impact on aggregate demand. Moreover, it increases output in both short and long term and decreases government debt to GDP ratio (IMF, 2014). The cost of financing is also lower in case of public investment.

Global experience showed a strong correlation and association between infrastructure and level of economic development and growth. Various countries across the world were benefitted by their infrastructure led strategies. The experiences of the US, Germany, Italy, Ethiopia, Brazil, Mexico, South Korea, Thailand, Japan, China and sub-Saharan Africa indicate that the large public investment in infrastructure helped positive and faster growth through various channels such as increase in factor productivity and refinement in the quality of institutions. Moreover, there was also a rise in per capita income, and the growth was equitable. Thus, international experience across various countries corroborates the significant and positive impact of government led infrastructure development on growth and welfare.

IV. Infrastructure Development in India

IV.1 Historical Evolution

After independence, there began an era of planned development comprising of the building of infrastructure in India. During the first two decades, institutionalisation of savings and credit, and establishment of development finance institutions (DFIs) facilitated the financing to infrastructure. The next era of social control over banking witnessed transformation in financial infrastructure across the country that aided the construction of infrastructure. The 1990s began with the paradigm shift in economic management of the nation with liberalisation, privatisation and globalisation followed by institutional, structural and financial sector reforms, which gave an impetus to infrastructure development through market-oriented solutions. Foreign direct investment in infrastructure was liberalised. The recommendations of Expert Group on Commercialisation of Infrastructure Projects headed by Rakesh Mohan prepared the blueprint on further infrastructure development. In 2006 the Viability Gap Funding Scheme (VGFS) was launched to provide finances to projects that were economically or socially beneficial but financially not viable. Thereunder 40 per cent of capital expenditure was provided as a grant. The last decade witnessed a significant upward shift in infrastructure growth. Digital Public Infrastructure (DPI) emerged in India in 2009 with launch of Aadhar as a channel for doorstep service delivery. The significance of digital infrastructure was realised further during the post-Covid scenario when physical interactions became non-feasible.

IV.2 Flight to Higher Orbits

India aspires for development of an ecosystem to attain economic growth which would promote all-round development leading to generation of employment, enabled by skills that are in sync with output having global quality standards. All these would lead to prosperity for the welfare of all people. Efforts were initiated in this direction during the last decade. United Nation (UN)’s Sustainable Development Goal (SDG) no. 9 aims to “develop quality, reliable, sustainable and resilient infrastructure including regional and trans-border infrastructure to support economic development and human well-being with a focus on affordable and equitable access for all”.¹ The focus on infrastructure is an integral part of the “Bhartiya Development Model” with an objective of “sustained, fast, inclusive growth” (Niti Aayog, 2023). With “social overhead capital” there have been attempts to penetrate economic development to the remotest parts of the nation. Realising its significance and to get the full multiplier effect of infrastructure, government adopted the “forward looking programmatic approach” in 2019. These mainly include National Monetisation Pipeline (NMP), National Infrastructure Pipeline (NIP), Public-Private Partnership (PPP) for expanding physical infrastructure, fiscal reforms, financing programs, measures for greening of economy and promotion of digital and social infrastructure. The comprehensive program adopted recently by the government has been elaborated in Annex A.

During the last decade capital expenditure of central government has witnessed a steady rise from ₹1.9 lakh crore in 2013-14 to ₹10.2 lakh crore in 2024-25 with a remarkable upward shift since 2018-19 (Chart 1). A high growth in infrastructure occurred during the period (Chart 2). The growth in capital expenditure and growth in infrastructure were associated with the rise in GDP (Charts 3 and 4).

IV.3 The Empirical Research

IV.3.1 Various Estimations

Various research studies have underscored the need for a big push to infrastructure. The correlation coefficient between per capita infrastructure investment and per capita GDP for 54 countries in various regions across the world including India in 2019 was significant at 0.75. The correlation coefficient between the overall infrastructure quality and per capita GDP for 154 countries including India in 2018 was 0.76.² The correlations of investment in infrastructure pertaining to rail, road, airport and inland modes with GDP for India were quite high with values greater than 0.90 (GoI, 2019). Various empirical works have estimated the output elasticity of infrastructure (during late 1980s & early 1990s) ranged between 0.38 – 0.56 (Khan, 2015). For India, Sahoo (2011) has found it to be upto 0.5. The output elasticity of public infrastructure was 8 per cent (Bom and Lighthart, 2013). The gains of infrastructure investment were substantial and the value of output and welfare (in terms of private consumption) multipliers of public investment on infrastructure were computed at 1-1.4 and 0.8 respectively (IMF, 2016), when infrastructure was adequately effective. The infrastructure positively affected quality of life and national security (Baldwin, Dixon, 2008), environment and welfare (Bristow and Nelthorp, 2000), output and employment (Gu, Macdonald, 2009), regional development (Nijkamp, 1986). Infrastructure favourably impacted the productivity and efficiency of manufacturing firms (Mitra et al., 2002). It played crucial role in reduction of poverty (Datt and Ravallion, 1998) and boosted agricultural and rural development (Bingswanger et al., 1993 and Fan et al., 2000) and overall economic growth in India (GoI, 2023).

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The fiscal multiplier effect for infrastructure investment was estimated by various entities. It was in the range of 0.8 up to 2 years, 1.5 for 2-5 years and 1.6 in recession³. The value of infrastructure investment multiplier was larger than the multiplier for overall public expenditure. In India, the estimated values of multiplier worked out between 2.5-3.5 (KPMG, 2024). It means that for each Rupee spent for creation of infrastructure, the growth in GDP would be ₹2.50 to ₹3.50. The multiplier value was higher during the contractionary phase of the economy as compared to the expansionary period, thereby benefitting more when needed. Moreover, its impact lasted for a longer period than that of revenue expenditure. Accordingly, the growth of expenditure for creation of infrastructure or capital expenditure as a proportion of gross domestic product (GDP) proved vital for growth.

IV.3.2 Empirical Exercise

We look at the relationship between infrastructure and GDP. For studying this, we create an infrastructure index and see the relationship with GDP. The data utilized in our study covers the period from 2006 to 2021 and is on an annual frequency. The data on real GDP, per capita GDP and road network are sourced from the CEIC⁴. All remaining infrastructure indicators have been taken from the World Development Indicators⁵ of the World Bank. The year-on-year growth rate has been computed for each indicator. We create three different indices based on the growth rate of the infrastructure variable. In the first method, we take simple average of the growth rates. In the second method, we take principal component of the growth rates, and in the third, we create an index based on dynamic factor model (DFM). The first two are linear methods and their weights are given in Table 1.

In simple average, we assume that each of the variables works in a similar way. We find that the access to electricity, clean fuel and technologies for cooking, length of roads and telephone subscription have significant weight in the principal component analysis (PCA) index, and any increase in these variables will significantly change the index. Equation 1 represents the regression model. The results of regression are given in Table 2.

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Data source: The data utilized in our study covers the period 2006 - 2021 with an annual frequency. The data on real GDP and road network are from the CEIC. All remaining infrastructure indicators are from World Development Indicators of the World Bank.

The results clearly indicate that the infrastructure index explains a part of the GDP growth. The infrastructure index is significant, implying that infrastructure has played an important role in the economic growth of the country.

In addition to above, the study is extended to the states level to create a panel data with Gross State Domestic Product (GSDP) as the dependent variable and the independent variables : 1) Foreign Direct Investment (FDI), 2) Proposed Investment, 3) Agricultural Yield, 4) Registered Vehicles, 5) Road Length, 6) Telecom Subscribers and 7) Electronic Exports for each state. It is an unbalanced panel containing data from 2012-2025 with total 431 observations. Hausman test is used and results are found in favour of fixed effect rather than random effect (with p-value < 0.001). The regression is represented by Equation 2 and estimates are given in Table 3.

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The above results strengthen our hypothesis that infrastructure plays important role in GDP growth. We further compute cluster-robust standard errors for a fixed effects regression model, addressing the issues like heteroskedasticity and within-group correlation (Hoechle, D., 2007). It computes robust standard errors clustered by “state”, relaxing the identical and independent distribution assumptions, an assumption used in ordinary least squares (OLS). The small-sample correction method adjusts for finite clusters. The coefficients remain significant with the recomputed coefficient significance test statistic (t-statistics, p-values) (Table 4).

The results show that 1 per cent increase in foreign direct investment (FDI) is associated with 0.013 per cent increase in GSDP and 1 per cent increase in investment is associated with 0.118 per cent increase in GSDP. An increase of 1 per cent in telecom subscribers results into an increase of 0.15 per cent in GSDP, and an increase of 1 per cent in electronic export growth results into GSDP growth of 0.008 per cent. Rest of the variables have small impact on GSDP. The significance of the results further corroborates our hypothesis.

V. Financing of Infrastructure

In order to enable India becoming a developed country by 2047, the annual real GDP growth would be required at 7.6 per cent (Behera et al., 2023). To attain the goal of US$ 5 trillion economy, the investment in infrastructure needs to be made at an annual rate of 8-10 per cent for next five years (NaBFID, 2022). For this, the required annual expenditure on infrastructure would be 7-8 per cent of GDP i.e., about US$ 200 billion⁶. In this context, the financing of infrastructure investment assumes significance. Funding of infrastructure involves various challenges. These include asset-liability mismatches arising from high sunk costs and long gestation periods, spike in costs due to delays in approvals, violation of agreements, problems in land acquisition, complicated legal mechanisms regarding distribution of returns, sharing of risks among all stakeholders and difficulties in price determination. The problems get accentuated due to interdependence of projects and non-availability of complimentary units causing time overruns with cascading effects in absence of holistic planning. Absence of developed debt raising market and financial system coupled with default by a non-banking financial company (NBFC) and high non-performing assets (NPAs) of banks in previous decade adversely impacted the funding of infrastructure sector.

Over the years, the Reserve Bank and government have taken various measures to facilitate the funding of infrastructure. These are outlined in Annex B. Due to long gestation period and avoidance of risk taking by the private institutions, the development finance institutions (DFIs) need to take up the work to address market failure and attain the broader objectives of the nation. In India, National Bank for Financing Infrastructure Development (NaBFID) was set up in 2022 by an Act of Parliament (NaBFID Act, 2021) as a main development finance institution for funding the infrastructure⁷. It has commenced work on providing stable finance for infrastructure, developing the derivatives and bond markets with liquidity and depth and exploring the novel funding instruments for financing the infrastructure. NaBFID grants loans for infrastructure, obtains investments from private sector and institutions including abroad, refinances the present loans, facilitates resolution of disputes, provides expertise, technology and consultancy services in funding the infrastructure. It provides a bouquet of services including term lending, debentures, bonds, guarantees and letters of comfort. These would also facilitate effective management of infrastructure projects that are facing issues of unviable costs and delays. Its activities involve coordination with various stakeholders to facilitate institution building for developing long term infrastructure. NaBFID has sanctioned over ₹1 lakh crore by 2023-24 and has also raised the disbursement (Rao, 2024). As a part of multilateral institutional partnership, it has signed a memorandum of understanding (MoU) with International Finance Corporation (IFC) for developing public private partnership (PPP) projects through mobilisation of private finance, especially for climate risk mitigation such as renewable energy. It has signed a Letter of Intent (LoI) with Asian Development Bank (ADB) and Foreign Commonwealth and Development Office. It would facilitate funding the urban bodies and developing financial instruments. Its MoU with New development Bank (NDB) would augment exchange of technical expertise and research and capacity building (NaBFID, 2025).

Going forward, taking further initiatives by NaBFID could contribute more to its mission. With the expansion in scale of large long term institutional investors like provident funds and insurance companies, it may tap funding from them. It may also secure a high credit rating to tap global and domestic sources of finance. It may develop its own sustainable financing model to reduce dependence on resources from government. It may develop a strong governance and assurance mechanism coupled with knowledge base and expertise. It may refine its skills in evaluation and dynamic monitoring of its financed projects with surveys etc. Systems may be put in place for resolution of stressed assets. It may provide funding for climate resistant low carbon infrastructure and technology to promote sustainable growth. It can provide technical advisory services for infrastructure projects and development of bond market. Provision of products like credit default swaps (CDS) and facilitating loan syndication would go a long way in this regard (Rao, 2024).

It would be desirable that the funding institution exert control over the performance of the funded entities in terms of achievement of objectives of the infrastructure projects. The arrangements of such ‘disciplining’ would need to be in place. The principle of “allocation discipline” (Kumar, 2022) based on “reciprocal control mechanisms” (Amsden, 2001) may be adhered to. A performance tracking and interventions would enable the financing entity to exert a control, and the beneficiary entities would reciprocate by attaining the goals of the projects. The financer would need to deploy the rigorous procedures for scrutinising the proposals for finance to assess the feasibility and fulfilment of objectives of projects. The phased provision of funding as per the progress of work would be desirable. The strong and effective monitoring would be helpful. In case of a failure or default, a system of restructuring or liquidation would need to be in place. The securitisation would play a crucial role therein. Securitisation is a significant instrument in funding infrastructure. It makes credit market diversified. Banks get benefitted in terms of releasing their capital and asset liability management. The small and medium sized banks face constraints in their capacity for credit appraisals. Securitisation enables them financing large infrastructure projects after the project has started working. In this context, there is a need to develop the market for securitisation. For this purpose, it would be imperative to resolve various constraints and take initiatives such as increasing the transparency through sufficient disclosures, raising demand for receivables for longer tenures, participation of long-term institutional investors, expansion in investor base, development of secondary market, and resolution of tax-related and legal issues including foreclosure laws.

India is witnessing fast urbanisation. For improving the standards of living in urban areas and attracting the persons and investments to towns, development of urban infrastructure would be the key. Rapid progress towards creation of smart cities and proactive initiatives by urban local bodies would contribute towards attaining these objectives. Municipal corporations may augment their capital expenditure through finding suitable and novel funding mechanisms based on bonds and lands to increase their incomes. Issuance of municipal bonds including green bonds would enable mobilising finances by municipal corporations on a sustainable basis (RBI, 2024). The issuance of municipal bonds commenced in India since mid-1990s for funding the local urban infrastructure. Its growth was facilitated through funding by a US agency, SEBI’s regulatory framework on municipal bonds, grants under AMRUT Scheme, and guidance under SEBI’s Information Database and Repository on Municipal Bonds for issuance and listing of municipal debt securities. Of late there has been a rise in municipal bond financing. Municipal bond index was launched recently by National Stock Exchange (NSE) which tracks performance of bonds issued by corporations having investment grade rating. This would enhance transparency in municipal bond market and expand the investor base. Municipal bond issuance and their market are presently at nascent stage. Outstanding municipal bond issuance stood at ₹4,204 crore as on March 31, 2024 which worked out to 0.09 per cent of outstanding corporate bonds and 0.01 per cent of GDP. Investor base is limited to private placement of major part of the bond issuance. For enabling the expansion in urban infrastructure, the municipal bond market needs to develop rapidly. For this, the improvement in financial performance and credit ratings of municipal corporations would be essential. That would boost the investor confidence and broaden the market participation. Some of the local bodies have recently started issuance of green bonds for projects having a positive ecological impact. This would promote sustainable urban development. The issuance involves extra cost. However, as the market develops, the cost would decline. The Fourteenth Finance Commission recommended creation of an intermediary to help the local bodies accessing bond markets. Moreover, local tax reforms, innovative strategies for augmenting tax and non-tax revenues, revisions in user charges for municipal services and taxes, and performance-linked municipal grants would go a long way in enhancing the magnitude of infrastructure financing.

External commercial borrowing (ECB) is another effective avenue for funding infrastructure. It enables the entities to borrow overseas funds at a lower cost and/or easier accessibility depending on the factors such as interest rates and exchange rates. This reduces the cost of infrastructure projects. On the other hand, excessive overseas borrowing and adverse exchange rate movements coupled with hedging costs increase their indebtedness with the risk of debt trap and pose challenges for the external sector sustainability and financial stability of the country in general. Progressive liberalisation of ECB policy, rule-based dynamic limit introduced by Reserve Bank, small proportion of India’s external debt and the strength of external sector would enable bridging the gap in infrastructure financing through ECB. Backing the ECBs with government guarantees for viable infrastructure projects may be helpful.

Sustainable infrastructure funding by banks would hinge upon the health of such assets. To prevent the building of high level of stressed assets in infrastructure with banking system, certain measures would be useful. First, the realistic assessment of time schedules of project completion and appropriate structuring of their financing with equity and loans would keep the costs at lowest level and increase the feasibility in funding. Second, the schedule of repayments may be fixed according to cash inflows of projects to avoid stressing. Third, project appraisals should be done by financiers realistically with respect to its designs, projections, identification of risks and matching those with risk appetites of the financiers. Fourth, project financing may be done through a diversified mix of sources and instruments including corporate bonds. Fifth, the loan pricing by lenders should reflect risks and be dynamic to adjust with changing risk profiles. Sixth, the institutional reforms would comprise of expanding the long-term investor base, harnessing the potential of capital markets and infrastructure funds, development of diversified financial instruments and expanding the securitisation of loans.

The issue of asset liability mismatches faced by banks in case of infrastructure funding could be resolved if they lend a larger portion at floating rates. Besides, there is a need for developing alternative sources for funding infrastructure to avoid financial stability risks arising from any stress in assets of the banking system. Investment bankers can play a significant role in financing infrastructure through provision of innovative ways of funding and acting as a link between government and private sector. There is a need to develop a bond market for infrastructure financing. It would elongate the maturity profile of debt, reduce maturity mismatches in the books of lenders, broaden the financing base, expand the instruments in risk management, enable stronger corporate governance and minimise the impact of borrowers on financers (Khan, 2015). Developing the market for sovereign green bonds may be accorded a priority, as they have a long tenure with lower refinancing risk, contain greenium (premium over plain bonds), impart stable funding source to government for climate related infrastructure and finance the green transition.

Finally, as the domestic savings fall short of the needed resources, exploring the ways of infrastructure financing through stable external sources such as concessional multilateral institutional finance and external commercial borrowing with sovereign guarantees would be crucial. It can fund the resource gap and impart viability and competitiveness to projects through technological knowledge. This should be done while ensuring systemic stability and covering the risks from unhedged portion of funds. From the policy angle, there is a need for macroeconomic quantitative assessment of existing supply of various kinds of infrastructure in the country with region-wise break-up, and the extent of infrastructure requirement. The gap would provide an estimate of investment need from private sector. Accordingly, the financing of gap may be done through tapping various avenues.

VI. Conclusion

Infrastructure investment favourably impacts sustainable economic development, growth and welfare through its multiplier effects and by facilitating an affable human life. India’s recent policy thrust on physical, digital and social infrastructure with an integrated and inclusive approach, cost efficiency, multimodal connectivity, greening aspects, higher capital expenditure and expanded financing mechanisms are proving effective in taking the country to a higher growth orbit in a sustainable way. Our empirical exercise shows that infrastructure development has positively and significantly impacted the growth in GDP. Infrastructure index explains a significant amount of the GDP growth. Accordingly, the future policy initiatives may focus on the increased investment and operations for creation of broad-based infrastructure across the country. Given the large requirement of investment in infrastructure, exploring the avenues and ways for financing the infrastructure projects assumes importance. It can be done through devising sustainable and innovative financing modules by NaBFID, exploring diversified avenues of public-private partnership, development of corporate, municipal and green bond markets, securitisation, appropriate project appraisals and loan pricing, project allocations with discipline, and development of alternative and innovative internal and external sources of financing. Macroeconomic assessment of infrastructure requirements and identification of supply gaps could impart further directions for policies. These would go a long way in maintaining the momentum to develop the ecosystem with growth, prosperity and welfare of all.

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Annex A: India’s Infrastructure Programme

Broad-based Institutional Set-Up

To enhance the participation of private sector in infrastructure projects, the government initiated National Monetisation Pipeline (NMP), National Infrastructure Pipeline (NIP) and Public-Private Partnership (PPP). NIP takes a complete view of development of infrastructure in the country. It enables the investors to plan their investments in infrastructure. NIP is envisaged with an investment of ₹111 lakh crore during 2020-2025 to be financed by central government, state governments and private sector entities. Presently it has 8,964 projects having investment of ₹108 lakh crore. NIP works on the platform of Invest India Grid (IIG) which is a central portal that coordinates and tracks the progress of all infrastructure projects. In addition to creation of infrastructure, there is also a focus on modernisation of existing set-up including airports and ports. With the proposed integration of project monitoring group (PMG) and NIP portals with NIP as a point of entering the data and PMG utilising the data, there will be a substantial saving of time. The financing for infrastructure is received from private, government and multilateral entities. Funding is also generated from monetisation of assets through NMP which was initiated in 2021 for creation of assets through monetisation by tapping investment from private sector. Therein the assets are leased or licensed to entities in private sector for maintaining and operating for certain period on basis of consideration. The consideration amounts are invested by government for infrastructure creation.

Various other new initiatives taken by government for infrastructural growth include Indian Customs Electronic Data Interchange Gateway (ICEGATE), Window Interface for Trade (SWIFT), National Rail Plan, Ude Desh Ka Aam Nagrik (UDAN), Parvatmala, Bharatmala, Sagarmala, e-Sanchit, reforms in various processes and GST reforms. Government announced several measures for states such as capital expenditure-linked additional borrowing facilities and long-term interest-free loans to increase their capital expenditure. A system for credit rating for infrastructure projects for risk assessment has been launched. In addition, some complementing reforms have been made including establishment of a devoted institution for infrastructure funding viz., National Bank for Financing Infrastructure and Development (NaBFID), public private partnership through Model Concession Agreements, funding options of Infrastructure Investment Trusts (InvITs) and Real Estate Investment Trusts (REITs), recapitalisation of development financial institutions (DFIs) and development of social infrastructure. For financing the developmental expenditure of PPP projects, India Infrastructure Project Development Fund (IIPDF) Scheme commenced in 2022. The central government’s capital expenditure as a proportion of GDP received a big push as it rose from an average 1.7 per cent (2009-2020) to 3.1 per cent in 2024-25.

To reduce the cost structures and increase the efficiency, the Gati Shakti and National Logistic Policy (NLP) were initiated. PM Gati Shakti framework envisages creation of an umbrella platform for all infrastructure projects with a complete database. The “seven engines” in NIP viz., mass transport, ports, logistic infrastructure, railways, roads, airports and waterways would be integrated with PM Gati Shakti- National Master Plan. National Logistics Policy (NLP) was launched in 2022 to coordinate and converge the infrastructural activities of all government entities and have an integrated logistics framework. Its vision involves development of integrated, cost-effective and resilient logistics ecosystem backed by technology. It is being executed through a Comprehensive Logistics Action Plan (CLAP). It would boost the manpower skills, digital infrastructure and enhance the services. The goals thereunder involve the reduction in logistics cost to match international benchmarks by 2030 and improvement in India’s ranking in logistics performance index to achieve place in top 25 nations by 2030. So far, it has reduced the cost by about 50 per cent (Virmani, 2023). The introduction of multi-modal connectivity for linking different modes of transport would facilitate the movements of people and goods among various types of transports. It would expand the reach of connectivity, reduce the cost and travel time.

Greening of Economy

As per Article 48-A in Constitution on commitment to environment preservation, and in view of the threats posed by global climate change, the government has taken several measures. In 2008, National Action Plan on Climate Change (NAPCC) was initiated for development of sustainable habitats, increasing energy efficiency, decreasing the intensity of emissions and expanding the area under forests. National Adaptation Fund on Climate Change (NAFCC) was set up in 2015 for sections and sectors vulnerable to climate change. Coalition for Disaster Resilient Infrastructure (CDRI) was established as an initiative towards disaster management system. Green Growth Equity Fund (GGEF) was launched in 2018 for green infrastructure expenditures. For mobilising funds for green infrastructure, in January 2023 the non-resident investors were provided unrestricted access to certain categories of central government securities including sovereign green bonds under fully accessible route (FAR). In 2022, government issued the Framework for Sovereign Green Bonds and accordingly the Reserve Bank notified in 2023 the issuance calendar for marketable Sovereign Green Bonds (SGBs) for mobilising finances for green infrastructure. The proceeds would be utilised for reducing the carbon intensity in the economy.

Digital Infrastructure

In 2015, the government launched Digital India Programme (DIP) that provides high speed internet for service delivery, private space on public cloud for digital storage and sharing of documents, and unique digital identity to citizens. Telecommunication services are provided in remote areas for connectivity and provision of affordable services with Comprehensive Telecom Development Plan (CTDP), National Frequency Allocation Plan (NFAP) and universal access to broadband services. With the e-Marketplace ‘MyScheme’, people can get information on suitable government schemes. National Artificial Intelligence Portal (NAIP) has been developed to provide artificial intelligence (AI) ecosystem. With the dynamic digital landscape, the standards for internet use like Open Credit Enablement Network (OCEN) for borrowing and lending modalities have been developed. The digital adoptions have been made all pervasive in various areas such as healthcare, education, financial services and agriculture. A wide gamut of services like direct benefit transfer (DBT) enabled by Jandhan Aadhar Mobile (JAM) trinity, national database for unorganised workers ‘e-Shram’ portal, Unified Payment Interface (UPI), DigiLocker, MyGov, Co-Win, financial data sharing with Account Aggregator Framework (AAF), digitisation of tax administration, Mission Drone Shakti, e-Rupee and Trade Receivables Discounting System (TReDS) indicate the major milestones in the journey of India’s digital infrastructure development.

With the thrust placed on development of digital and communications infrastructure, an expansion was witnessed in terms of access, usage and interoperability. The multiplier effect of digital infrastructure on growth has been very large due to multiple tasks done through mobile phone, Aadhar-based identification for grant of benefits and extension of financial, educational services and health facilities to the unreached sections. There has been a progress towards provision of services based on e-governance. The new initiatives such as the innovations pertaining to digital trade through Open Network for Digital Commerce (ONDC) and control access to user data with AAF are expected to further strengthen the digital infrastructure landscape in near future.

Social Infrastructure

The agenda under United Nation’s Sustainable Development Goals adopted by India focuses on elimination of poverty, inequality and creation of conducive conditions for sustainable and inclusive growth. Recent initiatives on these lines include National Education Policy (NEP), improvement in school facilities, increasing the number of teachers, rise in proportion of public expenditure on health, increasing the number of primary and community health centres, doctors and health personnel, Ayushman Bharat scheme, expansion in coverage of health insurance, e-Sanjeevani for telemedicine, provision of adequate potable water, electricity, empowerment of women, and rural economic empowerment through measures like SVAMITVA for digital land records.

Annex B: Policy Measures on Infrastructure Financing

1. Considering the delays in execution of infrastructure projects due to various reasons, the time and cost overruns have been allowed subject to stipulations.

2. Banks have been allowed to issue guarantees to other lenders for infrastructure projects if the former bear at least 5 per cent of the cost of projects and perform appraisal and monitoring of credit.

3. Banks have been permitted to fund the equity of promoters in case of acquiring shares in company executing infrastructure project in India.

4. Flexible structuring of lending has been permitted to banks for alignment of cash flows with repayments.

5. Infrastructure bonds issuance by banks has been permitted and the assets have been exempted from propriety sector lending norms in addition to exemption granted for funds from reserve requirements. Rupee denominated bonds in overseas capital markets (Masala Bonds) have also been allowed to be raised by banks.

6. As the fund raising for infrastructure would require a developed bond market and as the latter would reduce risk for banks, the Reserve Bank has taken various measures for development of corporate bond market. These include permitting the issuance of long term bonds by banks coupled with cross holdings of a proportion of primary issuance by them, allowing them to provide credit enhancement up to 50 per cent of the issuance of bond, simplification of issuance procedures for corporate bonds, standardisation of market conventions, allowing reissuances of corporate bonds for raising market liquidity, increasing the limit for foreign portfolio investors (FPIs), reduction in withholding tax, measures for deepening off-shore rupee bond market, establishment of reporting platforms for transparency, operationalisation of delivery versus payment (DvP) settlement of over the counter (OTC) transactions to curb the risk, permitting repo in corporate bonds, permitting credit enhancement of corporate bonds for infrastructure by banks and allowing credit default swaps (CDS) in corporate bonds for risk management. The corporate bond issuances have increased because of these measures.

7. As the finance providers are required to be compensated for risk of construction at prior stage, the measures such as permission to set up infrastructure development funds (IDFs) as mutual funds (MFs) and non-bank financial companies (NBFCs) for acquiring post construction assets from banks and ‘take out financing’ have been taken. The increased role of IDFs and InvITs would boost funding of infrastructure.

8. Consideration of debt due to the lenders of PPP projects as secured, has been allowed to certain extent.

9. Since there are safeguards for infrastructure financing like escrow accounts, the provisioning on sub-standard unsecured loan accounts in infrastructure has been reduced to 20 per cent, provided banks have arrangements to escrow the cash flows and have first claim thereon.

10. As the infrastructure sector has historically and potentially large proportion of accumulating stressed assets, banks have been provided with several instruments to safeguard themselves against stressed assets such as flexible restructuring scheme with inclusion of infrastructure sectors like construction, extra time for project completion and corrective action plan.

11. Banks have been permitted to set longer repayment period for infrastructure loans but provide funding for initial years or a shorter period and periodic refinancing through other banks or instruments, termed as 5/25 scheme. Such flexibilities however need to be judiciously utilised by the lenders without concealing the stress in assets.

12. Guidelines were issued in 2014 allowing banks to mobilise long term finances for infrastructure lending with minimum regulatory pre-emption like cash reserve ratio (CRR). In 2023 the regulatory framework for IDF-NBFCs was reviewed by the Reserve Bank to facilitate their greater role and harmonising the regulations.

13. Foreign portfolio investors (FPIs) were allowed to invest in debt securities of Real Estate Investment Trusts (REITs) and InvITs.

14. Takeout financing has a significant role in funding infrastructure as it enables banks to fund long tenure projects with medium tenure finances through reduction in their exposure and better management of their assets and liabilities. Accordingly, banks have been permitted to refinance project lending through partial takeout funding without prior agreement with other financial institutions and set a longer period for redemption.

15. An Urban Infrastructure Development Fund (UIDF) has been set up by using the shortfall in priority sector lending with an initial corpus of ₹10,000 crore.

^{^} Authors are from Department of Economic and Policy Research. Inputs from Rajib Das are thankfully acknowledged. The views expressed in this article are the personal views of authors and do not represent the views of the Reserve Bank of India.

¹ Economic Survey 2018-19 (Vol. 2), Government of India.

² Economic Survey 2022-23, Government of India.

³ Estimate by S & P Global as quoted by Economic Advisory Council to Prime Minister.

⁴ https://www.ceicdata.com/en

⁵ https://databank.worldbank.org/source/world-development-indicators

⁶ Economic Survey 2018-19, Government of India.

⁷ https://www.nabfid.org