Unlocking India’s multi-billion-dollar infrastructure investment opportunity
From expressways to power transmission grids, India is racing to build infrastructure to meet the demands of its fast-growing economy. But it faces a significant financing challenge. Private capital is seizing the opportunity to close the gap.
India is laying down roads at a blistering pace. An average of 33.8 kilometers (21 miles) of highway per day are being constructed, forming one of the world’s largest road networks. Government capital expenditure has surged more than fivefold over the past decade, with a record INR11.21 trillion (USD127 billion), or 3.1% of GDP, earmarked for financial year (FY) 2025-2026. Yet despite this momentum, India still faces an infrastructure financing gap that is estimated to exceed 5% of GDP.
As the economy rapidly expands, so does the demand for new and upgraded highways, ports, airports, energy grids, warehouses, and digital infrastructure.
But financing these capital-intensive projects remains a challenge. Infrastructure investments typically require large upfront costs, involve long gestation periods, and generate uncertain returns. That’s why these have been largely financed by the public sector.
That is changing, with increasing private capital participation via infrastructure investment trusts (InvITs). These vehicles pool infrastructure assets for investors and are now attracting some of the world’s largest institutions like pension funds, sovereign wealth funds, multilateral agencies, and private equity firms. The Canada Pension Plan Investment Board, Ontario Teachers’ Pension Plan Board, Mubadala Investment Company, Asian Infrastructure Investment Bank, and the private equity firm KKR are among those that have invested multi-million dollars into InvITs in recent years.
Monetizing assets
“InvITs are probably the most efficient way to hold infrastructure assets in India, and the key reason for this is the structure has been built with a focus on derisking and distributions,” explained Vinay Sekar, CEO of Cube Highways Trust.
Under a trust structure, InvITs pool investor funds to invest into operational assets, for example, a stretch of highway. The owner transfers the assets to the trust. Investors receive cash flows from revenues (for example, toll fees) as predictable income. Owners retain control of the asset, while operational management is outsourced. An investment manager oversees the administration of the asset, while a project manager handles its operations and maintenance.
Importantly, InvITs are helping infrastructure owners unlock capital tied up in mature assets, enabling faster reinvestment into new projects. The World Bank describes InvITs as a “scalable solution” to India’s infrastructure funding challenges.
“I think its primary impact is the deleveraging of balance sheets. You have other entities, whether it's the private sector or the public sector, who are risk takers and willing to invest in and develop newer infrastructure projects and get the returns available for that risk. They can now focus on that job, and then once the assets are completed, they can hand them over to an InvIT, deleverage themselves and recycle their capital to further invest,” said Sekar.
The National Monetization Pipeline has identified roads, railways, power, oil & gas pipelines, and telecom assets to be monetized over several years. This helps reduce the pressure on the government to issue new debt for greenfield projects. For example, the National Highways Authority of India, which manages the country’s highways, has successfully monetized over 2,300 kilometers of highways through an InvIT.
Crisil Ratings estimates InvITs now manage INR6.3 trillion (USD72 billion) in assets. This figure is expected to grow 25% to INR8 trillion by FY2027, with the largest increase coming from the roads sector.
A broadening investor base
As global investors increase allocations to private markets, core infrastructure offers a multi-trillion dollar investment opportunity. In emerging markets, like in Africa, CFA Institute research has shown that combining public funds with private investments can be a crucial mechanism to mobilize resources for large-scale infrastructure and development projects.
In India, the InvIT structure is appealing for institutions needing reliable, long-term income because the trust is required to distribute at least 90% of the net distributable cash flows throughout the life of the trust.
“Sovereign wealth funds, insurance, companies and pension funds are looking to solve for long-term liabilities. They're planning in decades, not in terms of years. So, I think this is a natural mix. In our sector, for example, we also deliver inflation-adjusted returns. Our toll revenues increase every year based on the wholesale price index,” said Sekar.
Gaurav Malhotra, CEO, CFO and CIO of Sustainable Energy Infra Trust (SEIT), expects the investor base to broaden and become more diversified with increasing participation from domestic mutual funds, insurance companies and high-net-worth individuals attracted to the asset class's low risk profile.
“It is right in the middle of the investment portfolio of an investor, between equity and debt because you will have much lower volatility in the prices of these units plus, for most of the cases, the underlying asset has guaranteed cash flows under a contract with a government entity subject to certain performance obligations,” he said.
The country’s rapidly growing retail investor base also has access to InvITs via the stock exchange, providing them with exposure to an asset class that was once difficult to invest in.
“I think there is a certain degree of pride for a retail investor to own his infrastructure asset, whether it's the airport that they frequent, or the road they drive through. But beyond that, I think everybody plans for their retirement. I think when you start thinking about what you need to put together for your retirement basket, I think it is a great base that you would want to have, which is essentially long-term inflation-linked cash flows over a period of 20 or 30 years,” added Sekar.
The road ahead
Malhotra says the industry has a lot of room to grow given that a large number of infrastructure assets are still in the hands of the government and private owners.
“There is obviously a much larger infra industry in India that is not in the InvIT space. For example, there are no airports or ports that are part of InvITs today. A large portion of the road sector is still owned by the government. Given the current asset ownership patterns, we expect this industry to actually become much larger going forward,” he said.
India’s latest road sector asset monetization strategy makes one thing clear: the government is pushing ahead with the InvITs approach. Nearly 1,500 kilometers of roads are expected to be monetized in FY2025–2026 alone.
Renewable energy is one area where investments are expected to pick up over the next several years (Figure 2) in line with India’s target to generate 500 gigawatts of renewable power by 2030.
“We’re currently at 230 to 240 gigawatts. We are basically saying that we'll double that size in the next five years. And this also means that we have to build the relevant transmission and distribution infrastructure to match that supply of power over the next five years,” said Malhotra.
To support growth, some InvITs are tapping debt markets as domestic interest rates start to fall. Some are also exploring innovative financing routes: Cube Highways, for example, recently launched the first sustainability-linked bond by a road InvIT.
Regulatory trends are also on their side. India’s securities regulator, SEBI, is proposing broadening the definition of strategic investors in InvITs. If that goes ahead, it could unlock another wave of long-term capital from investors such as public financial institutions, provident funds, and insurance funds – giving India’s infrastructure ambitions a stronger foundation to grow.
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