Mumbai, Oct. 27 -- As India unlocks diverse capital pathways to fuel infrastructure growth, broaden investor participation, and strengthen the foundations of its next economic phase, the financial sector must match this mission, Arka Mookerjee and Soumitra Majumdar affirm.
Finance is the fuel for growth. As India seeks to sustain high levels of sustainable economic growth and infrastructure development, its financial sector will need to mobilise the capital required to support this mission. Innovative financial instruments, patient capital and broad-based access to domestic and international sources of finance will be critical, particularly as investment expands across infrastructure, core industries and new-age sectors. In this context, the Government's role as a facilitator for encouraging private-sector participation alongside building a robust regulatory framework will be central to enabling the flow of capital into the nation's next growth phase.Current literature on investment patterns is almost unanimous in its observations. First, the nature of infrastructure assets has evolved significantly. Beyond highways, ports, urban infrastructure and power, next-generation assets such as data centres, EV charging stations and fibre-optic networks have assumed centre stage in attracting investment. Second, private capital continues to doggedly pursue good-quality infrastructure assets, with larger allocations, higher deal sizes and increasingly complex structures. Implicit in this trend is the need to ensure that returns on these investments remain commensurate with the risks undertaken and the tenor of the capital deployed. Accordingly, India's current financing policies and regime need to be evaluated against these yardsticks to assess readiness for attracting the required capital.
Investable opportunitiesFor long-term capital to be mobilised, investors need investable assets capable of generating predictable and sustainable returns over long periods. India's infrastructure pipeline, corporate capex and growing pool of operational assets provide investors with such opportunities. Being the largest recipient of gross FDI in South Asia and the largest destination for greenfield digital investment for FY2020-24, India's physical infrastructure is increasingly sitting alongside digital infrastructure, green energy, water resilience and clean technologies. The growth story and policy emphasis on development of GCCs and data centres make India a compelling investment destination in terms of asset availability and options.Supporting these tailwinds are a slew of regulatory measures, which enable India to mobilise and receive investments from global as well as local sources through myriad instruments and business organisations.Notable among the recent liberalisations is the complete overhaul of the regime governing external commercial borrowings (ECBs). Marking a clean departure from the policy imperatives of capped returns and longer tenors-guided by end-use-the current regime allows Indian businesses to chart out the best deal for them, aligned with prevailing market conditions. Expanding the investor base and borrower base, minimising end-use restrictions and regulatory consent requirements, the ECB regime makes the competitive international debt market accessible to a larger segment of Indian businesses. The minimum average maturity period, earlier linked to end-uses, has now been made uniform, with several compliance exceptions given for corporate life-events. Hard-coded 'all-in-cost' caps have been replaced by market-driven benchmarks.These liberalisations make the regime closer to commercial realities, thus making it attractive and effective. The ability to negotiate and structure deals that meet the imperatives of both the overseas lender and the Indian borrower-enabling risk-adjusted returns-is the hallmark of the new regime. Reporting requirements have been significantly rationalised and made event-based. An efficient reporting mechanism will ensure that regulators have the quality data to recalibrate strategies and policies when required.Hot on the heels of this is the liberalisation of the regime governing credit enhancements and guarantees by offshore guarantors and development finance institutions (DFIs) of Indian debt. A robust credit guarantee, permitting flexible structuring options, necessarily boosts investor confidence, reduces credit risks and, resultantly, interest rates.Restrictions on acquisition financings by Indian banks have long held back the M&A financing market, making most of these deals offshore. Availability of good quality assets without the ability to leverage these also constrains investment decisions by sponsors. The current permissions for Indian banks to finance 'control' acquisition deals are a significant milestone. The ECB guidelines also expressly permit acquisition (of control) financing as a permissible end-use. Infrastructure is closely linked to the growth of manufacturing, pharmaceuticals, automobiles and other core sectors because these industries depend on reliable transport, logistics, power, industrial parks, water, warehousing and connectivity.Leveraged financings would push Indian corporate activities to greater heights of overall value creation. Innate in these liberalisations is the regulatory mandate for due prudential management and risk mitigation by banks.
Financing instruments shiftDomestic banks have always remained an important source of India's infrastructure investment cycle. The Economic Survey notes that bank credits to infrastructure stood at '13.91 trillion as of October 2025. However, potential asset-liability mismatches in bank financing of infrastructure assets have always worried regulators. Due to sustained efforts in this regard, the Economic Survey 2025-26 notes that India's infrastructure financing is shifting from dependence on bank credit towards infrastructure investment trusts (InvITs), real estate investment trusts (REITs) and capital market instruments, which can mobilise long-term institutional capital and broaden the investor base.InvITs refinance project debt for operating assets, freeing up bank lending capacity for new funding requirements. REITs are also described as vehicles for monetising completed assets and recycling capital into new projects. InvITs and REITs provide a mechanism for monetising operational infrastructure and real-estate assets and widening investor participation in their underlying cash flows. By releasing capital otherwise locked in completed assets, these structures can enable sponsors to recycle capital into new projects, while diversified portfolios can help reduce concentration risk for investors. Sponsors and unit-holders also have the option of leveraging their units in InvITs and REITs and thus maximise value and achieve efficient liquidity management.InvITs and REITs have achieved notable success in India. Regulators such as SEBI and RBI have paved the necessary frameworks for these business trusts to access equity as well as debt financing. Regulatory steps should be expeditiously taken by the RBI to permit InvITs to access ECB facilities. The restriction does not stand to reason and denies InvITs access to good quality patient overseas debt financing.The Indian alternative investment fund (AIF) ecosystem also shows continued growth and increased capital deployment across sectors such as real estate, pharma and healthcare, distressed assets resolution and financial services. The regulatory shift in assessing an AIF's investor base-rather than the investment manager-reflects India's policy imperative of exercising due diligence to ensure quality capital inflows. The GIFT City-registered AIFs' ability to access sub-line facilities leveraging rated limited partner (LP) commitments also enables efficient capital deployments and consequent value creation.
Rising domestic capitalDomestic participation has become an increasingly important source of capital. By December 2025, India had more than 216 million demat accounts, while unique investors in mutual funds stood at 59 million. The Economic Survey also notes that domestic institutional investors have increasingly counterbalanced volatile foreign investment flows. The upswing of retail participation in the Indian capital markets shows strong market depth and investor confidence.Strengthening risk disclosures, SEBI, in August 2026, proposed a Credit Risk-o-Meter as an additional disclosure mechanism for debt securities. As India expands access to capital through equity and debt markets, the regulatory framework seeks to ensure that greater capital formation is accompanied by due and uniform disclosure, credit risk management, market integrity and systematic safeguards. The objective is therefore not merely to deepen capital markets, but to deepen them without compromising financial stability.Overall, the regulatory framework has been designed to broaden the investor base, drawing private capital from both global and domestic sources through InvITs, REITs, debt financing, institutional investors and government-backed vehicles such as the National Investment and Infrastructure Fund (NIIF). Recent reforms undertaken in June 2026 further purport to expand foreign portfolio investment (FPI) participation in G-Secs and seek to attract stable, long-term foreign capital while deepening India's markets. Regulations have been reimagined to focus more on investor diligence and development of risk mitigation policies, and less on the commercial terms and constructs.India's sustained growth, improving macroeconomic stability and deepening domestic capital markets provide a strong foundation for mobilising capital, while ongoing regulatory reforms are broadening access to both domestic and international finance. The aspects discussed here reflect that Indian policies are in tune with the dominant investment hypothesis, fueling its growth ambitions.
About the author:Arka Mookerjee, Partner, JSA Legal, is recognised for advising on India's most complex, high-value transactions and for his pivotal role in shaping the regulatory framework of capital markets.
Soumitra Majumdar, Partner, JSA Legal, specialises in financing and restructurings, advising lenders and sponsors on complex transactions across various stages of the credit life cycle, and is noted for his thought leadership.
Published by HT Digital Content Services with permission from Infrastructure Today.