Infrastructure Risk Guarantee Fund: De-Risking Finance Capital

The Union Budget 2026–27 introduced an Infrastructure Risk Guarantee Fund (IRGF), announced by Finance Minister Nirmala Sitharaman as a mechanism to support infrastructure projects during the design and construction phases. The budget has allocated ₹1,000 crore towards this initiative.This allocation is significantly lower than earlier media reports that suggested a much larger ₹25,000 crore infrastructure risk guarantee mechanism was under consideration. While the government has positioned the fund as a tool to accelerate infrastructure creation, detailed guidelines are not yet formulated, particularly regarding whether the guarantees will extend to purely private sector projects or be limited to public–private partnership (PPP) arrangements.

On the surface, the IRGF appears to be aimed at reducing risks faced by financiers, private investors, and project developers who depend on large borrowings to execute infrastructure projects. Infrastructure investments typically involve high capital costs, long gestation periods, and exposure to regulatory, land acquisition, environmental clearance, and demand uncertainties. These risks often deter private participation or increase borrowing costs. By providing government-backed guarantees during vulnerable project phases, the fund seeks to improve investor confidence and lower financing costs..

Over the past decade, policy narratives have consistently emphasised the role of private capital in driving infrastructure growth. Yet, actual private investment in core infrastructure sectors such as transport, energy, and logistics has remained government expectations. The IRGF can therefore be interpreted as an acknowledgement that private investment has neither contributed substantially nor can it sustain infrastructure expansion without substantial state support.

From a critical perspective, the proposed fund raises concerns about the allocation of public resources and risk distribution. By using public money to guarantee project risks, the state effectively absorbs uncertainties that private investors are unwilling to bear. While this approach may attract investment, it also risks creating a situation where potential losses are socialised, while profits remain largely privatised. Such arrangements may weaken incentives for rigorous project evaluation and prudent risk management by private developers and lenders, who could rely on sovereign backing as a safety net.

There are also broader governance and environmental concerns. Infrastructure projects often involve complex land, ecological, and community impacts. If public guarantees are extended without strong social and environmental due diligence frameworks, the fund may indirectly support projects with uncertain or adverse public benefits. In such cases, taxpayers would bear financial risks alongside potential social and ecological costs.

In effect, the Infrastructure Risk Guarantee Fund signals a continuation of the policy trend of de-risking private capital through public finance.