The Union government is considering the creation of a Rs 250 billion risk guarantee fund for infrastructure projects to address financing bottlenecks and help revive stalled developments, according to people familiar with the matter.

The proposed safety net, modelled on existing credit guarantee schemes for small businesses, could be announced in the Union Budget for FY27. The proposal has been submitted to the finance ministry by a committee under the National Bank for Financing Infrastructure and Development (NaBFID). As per the plan, the National Credit Guarantee Trustee Company (NCGTC) would provide guarantees against development risks, enabling banks and financial institutions to extend loans on more flexible terms.

The move comes amid persistent project delays, cost overruns and elevated borrowing costs that have constrained private investment in infrastructure. Government estimates suggest India will need around USD 2.2 trillion in infrastructure spending by 2030 to support its ambition of becoming a USD 7 trillion economy.

A government official said the proposed fund would partially guarantee loans to infrastructure projects for a nominal fee, lowering risks for lenders and encouraging higher credit flow and larger exposures. While the guarantee fee would marginally add to borrowing costs, its impact on lending rates is expected to be limited.

Discussions on the fund have been under way for some time. The initial corpus is expected to be provided through the Union Budget, with the finance ministry also exploring participation from public and private sector financial institutions. The framework is likely to mirror the Credit Guarantee Fund Scheme for Micro and Small Enterprises, launched in 2000 to promote collateral-free lending.

A NaBFID official said the recommendations were submitted a few months ago and are likely to be considered in the forthcoming Budget. Queries sent to the finance ministry, the department of financial services and NaBFID did not receive responses.

If implemented, the initiative is expected to reduce financing risks for banks and non-banking lenders, improve access to credit at competitive rates and enable larger funding commitments to infrastructure projects. Experts cautioned, however, that its success would depend on robust risk pricing and disciplined underwriting standards.

India’s capital expenditure allocation for FY26 stands at Rs 11.21 trillion, or about 3.1 per cent of GDP, compared with Rs 11.11 trillion, or around 3.4 per cent of GDP, in the previous Budget. Despite higher public spending, external risks and project-level challenges continue to weigh on infrastructure financing.

According to data shared by the Ministry of Road Transport and Highways in Parliament, 574 national highway projects awarded over the past five years, with a combined cost of about Rs 3.6 trillion, have exceeded their original completion timelines. More than 300 projects are delayed by up to a year, while 253 have faced delays of one to three years. Another 21 projects are running over three years behind schedule. In addition, 133 highway projects worth around Rs 1 trillion have been awarded but are yet to commence due to issues such as land acquisition hurdles, pending forest and wildlife clearances, delays in financial closure and non-submission of bank guarantees.