Article

Bridging India's infrastructure funding gap by 2025

India aims for a USD 5 trillion economy by 2025, requiring USD 1.4 trillion in infrastructure investments and diverse funding sources.

By Steer
Mumbai Coastal Road Project at Haji Ali

India Inc. envisages achieving the target of a USD 5 trillion economy by 2025, which requires a committed capex spend of USD 1.4 trillion on infrastructure, as per the National Infrastructure Pipeline (NIP) estimates (over FY2020-25) for a sustained growth trajectory.

The historical Infrastructure investments in India, as per estimates, for fiscals 2018 and 2019 were ~USD 0.1 trillion per year (INR 10.2 lakh crore and ~INR 10 lakh crore, respectively). This requirement scales to USD 1.4 trillion (INR 111 lakh crore) projected over fiscals 2020 to 2025, with ~72% of the infrastructure investments directly feeding into energy (24%), roads (18%), urban (17%) and railways (12%) sector. The timely completion of USD 0.5 trillion (40%) worth of projects under implementation, USD 0.4 trillion (30%) worth of projects at the conceptualisation stage, and USD 0.3 trillion (20%) worth of projects under development, out of the total lined up under the NIP 2019-25 is a key question.

Nearly 20% of the pipeline is expected to be financed through the Centre’s budget, while ~25% is expected to be financed through the State’s budget, and ~31% would be raised through debt from bond markets, banks and NBFCs, with external aid multilateral and bilateral agencies comprising 6-9% as per NIP estimates. This adds up to 83–85% of the capital expenditure being anticipated to be financed by conventional sources. The public sector, including the Centre and State governments and PSUs (accounting for ~70% of total share), have played pivotal roles in undertaking infrastructure capital outlay, with private sectors gaining importance in recent years (~30% share). The investment partnership between the State and the Private sector evolved only after the implementation of robust regulatory and investment mechanisms, making it congenial for private players to participate in the PPP contracts. However, the biggest challenge remains to bridge the large funding gap of balance ~15-17%. 

While some gaps are filled through establishing new DFIs and using asset monetisation as a tool to monetise operational assets at both central and State levels, bridging the remaining gap is herculean. This is given the inherent nature of these projects with long development and gestation periods, project mispricing, aversion on account of credit ratings, lack of long-term capital-raising strategies and weak interests from global institutional investors, especially towards under-construction projects which are susceptible to stagnation risks due to liquidity crunch, limited incentives, and inappropriate revenue forecasts.

This translates that the conventional sources of finances, including reliance on equity markets, debt securities, and lending processes by banks and Non-Bank Financial Companies (NBFCs), or domestic institutional investors would not suffice, and hence require interests from global institutional investors, sovereign wealth funds, endowment funds, pension funds, insurance funds especially real estate investment trusts (REITs), Alternative Investment Funds and infrastructure investment trusts (InvITs) designed specifically to provide a long-term equity and debt investment options in Special Purchase Vehicles (SPVs). Alongside, adequate support in terms of:

  • favourable long-term revenue models with consistent cash flow through long-term concessions.
  • compensation for volatility and risk exposures.
  • regulatory support in the form of relaxing foreign investments in ‘infrastructure’ segments, supporting more registrations of InvITs
    • relaxations in lock-in period for InvITs.
    • allow easy channelisation of profit distribution to unitholders through dividends, interest, and repayment of loans advanced to projects.
  • lower interest rates.
  • structuring the infrastructure deals and financial engineering in the form of enticing financial instruments for institutional investors.
  • focusing/transition from PPP to PFI (Privately Funded Infrastructure) projects.

The requirement of a congenial regulatory framework that is conducive to attracting investors — both domestic and foreign — and tapping into long-term capital sources like pension funds and insurance instruments supports raising foreign debt capital by allowing bonds and external commercial borrowings (ECBs) in infrastructure. This will enable the funding gap to be bridged between long-term and short-term aspects and make the returns more stable. 

Written by Sonia Chakraborty, Principal Consultant, Steer. 

Off

Subscribe to our newsletter, The Edit

We are Steer

Yes, you are in the right place. After 40 years, we have changed our name from Steer Davies Gleave to mark our growing international footprint and our expanding portfolio into sectors beyond transport.

Explore our new website to learn more about Steer: who we are, how we work and what our future holds.

Related insights

  • 18 Sep 2025
    Article

    Ancoats Mobility Hub: Enabling car-lite developments

    By Steer

    Steer supported the UK’s first purpose-built Mobility Hub with commercial modelling to enable sustainable, car-lite regeneration.

    Read more

  • 31 Jul 2025
    Article

    New study shows best ways to unlock value of UK railway station estate

    Richard Harper
    Director

    Steer and RIA outline strategies to unlock station potential, creating sustainable, connected hubs that drive social and economic value.

    Read more

  • 28 Feb 2025
    Article

    Planning transport for the next generation of New Towns: Vertiports or cycle lanes?

    Profile image
    Matthew Clark
    Associate Director
    Jon Williams
    Associate Director

    As the Labour Government eyes its 1.5 million housebuilding target, how can we ensure these communities work for the future?

    Read more

  • 24 Jan 2025
    Article

    What does 2025 have in store for infrastructure investors? Here is Steer’s outlook

    Antonio Beltrán Arranz
    Associate

    Steer’s Antonio Beltran Arranz explores key investment trends for 2025, from rail modernisation to renewable energy growth.

    Read more

  • 09 Dec 2024
    Article

    What did we learn at the Local Transport Summit 2024?

    By Steer

    Another successful Local Transport Summit saw Steer along with industry professionals from across the board congregate in Bedford this week.

    Read more

  • 02 Dec 2024
    Article

    Is integrated transport planning and housing development the key to achieving multiple policy goals?

    Steven Bishop
    Director

    How can sustainable transport and planning shape the future of housing and communities?

    Read more

  • 27 Nov 2024
    Article

    New Towns, the next chapter: How will the Labour agenda shape new towns?

    Martin Hubbard
    Associate

    Exploring modern New Towns: sustainable design, transport innovation, and lessons from post-war planning for thriving communities.

    Read more

  • 11 Oct 2024
    Article

    Highway to the future: How far have electric vehicles penetrated the US market?

    By Steer

    Explore the future of US highways and vehicle innovation in our 'Highway to the Future' series on EVs and decarbonization.

    Read more

  • 25 Sep 2024
    Article

    Supporting well-being with signage: lessons from Steer’s Toronto Natural Environment Trails wayfinding project

    On Oct 3, Principal Consultant David Kopulos presents 'Building through partnerships' at World Trails Conference, Ottawa.

    Read more

  • 24 Sep 2024
    Article

    An alarming fall-off in the growth of new EV sales?

    Profile image
    Matthew Clark
    Associate Director

    Jato Dynamics recently reported that August had reflected Europe’s largest year-on-year drop in new electric vehicle registrations.

    Read more

  • 20 Sep 2024
    Article

    Au revoir: Our key takeaways on mobility from the Paris 2024 Olympics

    Edward Robinson
    Associate
    Simon Hall
    Director & Head of Sports and Major Events

    Life in Paris returns to normal as athletes from across the globe head home carrying medals and memories following the 2024 Olympic Games.

    Read more

  • 19 Sep 2024
    Article

    Confusion creates delay in public sector engagement in EV charging ventures

    Profile image
    Matthew Clark
    Associate Director

    The pace with which local government authorities are attracting private investment to subsidised EV charging projects has fallen way behind.

    Read more