Centre Mulls ₹20,000 Crore Risk Guarantee Fund to Spur Infra Growth

The government is considering a proposal for creation of a ₹20,000 crore risk guarantee fund for the infrastructure sector to push investment by the private sector.

The establishment of a risk guarantee fund for the infrastructure sector is expected to attract private sector investment by sharing project risks, thereby reducing the burden on project developers, sources said.

The fund with initial corpus of ₹20,000 crore may be managed by National Credit Guarantee Trustee Company Limited (NCGTC), sources said, adding, the fund would underwrite development risk of a new project.

Besides, there should be additional safeguards by way of a minimum stake by the developer and risk-based premiums may be charged.

The fund would cover losses arising from policy uncertainty and other non-commercial risks, thereby encouraging lenders to extend larger loans to big projects, sources added.

For the fund to be successful, sources said, the fund's guarantee must be bankable and there must be assurance of payment in a timely manner.

It is estimated that India would need to spend USD 4.51 trillion (about ₹390 lakh crore) on infrastructure by 2030 to realise the vision of a USD 5 trillion economy by 2025, and to continue on an escalated trajectory until 2030, as per the National Infrastructure Pipeline (NIP) report.

India's ambition of sustaining its relatively high growth depends on the infrastructure sector. The country, however, is plagued with weak infrastructure incapable of meeting the needs of a growing economy and growing population, the report said.

The report by the task force headed by the then Economic Affairs Secretary pointed out that the quality of infrastructure is among the biggest hurdles facing the Indian government's ambitious programme, 'Make in India', which aims to improve the nation's manufacturing capabilities and support higher growth for generating employment.

The corporate growth and investments can also be hampered if the government fails to close the infrastructure deficit, which some experts estimate costs 4-5% of GDP due to inefficiencies, the report released in 2020 said.

Infrastructure development can not only help remove some of these inefficiencies contributing immediately to economic expansion, but also support stronger long-term growth, it said.

Creating new and upgrading existing infrastructure will be key to raising India's competitiveness and achieving this target, it said, adding, it will specially be critical for the success of the Make in India programme as manufacturing competitiveness critically depends on infrastructure