New Delhi: The finance ministry is drafting a new financing framework to help turn more investment projects into bankable ventures and widen the pool of funding beyond banks, as India faces an investment requirement of about ₹150 trillion over FY27-31, according to three people aware of the development.
The framework, being prepared in coordination with the Department of Economic Affairs (DEA) and Department of Financial Services (DFS), will seek to accelerate projects from announcement to financial closure by identifying projects with greater economic and strategic relevance, speeding up environmental clearances, and standardizing detailed project reports (DPRs), the people said on condition of anonymity.
“A centre of excellence is proposed to develop standardised DPR templates and strengthen internal underwriting capabilities,” one of the people said.
Progress will be tracked by the number and value of projects identified, shortlisted, and prioritized, and by how quickly prioritized projects move from clearance to financial closure. The framework also proposes monitoring the centre of excellence's role in strengthening underwriting capacity and improving closure rates.
The framework also seeks to deepen debt markets through credit enhancement for investment-grade critical projects, greater participation by institutional investors, and a unified request-for-quote (RFQ) mechanism to improve price discovery, a second person said.
Key indicators include the volume of credit-enhanced debt and ratings uplift achieved; capital mobilized from institutional investors such as provident funds, insurers, and the Employees’ Provident Fund Organisation (EPFO); and transaction volumes through the RFQ mechanism, a third person added.
According to the government document, India’s average annual capex requirement could be around ₹30 trillion during FY27-31, implying cumulative investment of roughly ₹150 trillion over the five-year period. After accounting for internal accruals and budgetary support, about ₹50 trillion would be required to finance capital expenditure, while working-capital requirements would add another ₹35 trillion, taking the total external funding requirement to around ₹85 trillion.
Banks are expected to fund nearly ₹60 trillion, or about 70%, of this external requirement, according to the government document reviewed by Mint. The government is therefore looking to supplement bank financing with a broader funding base, particularly for infrastructure and industrial projects with long gestation periods.
Queries emailed Wednesday evening to the Department of Financial Services, Department of Economic Affairs, PMO, Niti Aayog, Sebi, IIFCL, NaBFID, and the finance ministry were unanswered till press time.
The push to broaden the financing mix comes against the backdrop of sluggish private-sector investment despite strong corporate profits, while the government continues to drive capital expenditure. The Centre has budgeted ₹12.22 trillion for capital expenditure in FY27, up from ₹11.21 trillion in the FY26 Budget estimate.
Private corporate capital expenditure on new assets is estimated at a provisional ₹11.44 trillion in FY26, but investment intentions for FY27 have moderated 16.5% to ₹9.55 trillion, according to the National Statistics Office’s survey of large enterprises.
“The focus on standardized DPRs and faster clearances can create a stronger pipeline of bankable projects and is as critical as the focus on financing,” said Kanika Pasricha, chief economic advisor at Union Bank of India.
“This should help accelerate financial closure and effectively crowd in private capital,” Pasricha said. “Together, these measures can provide a strong impetus to India’s next investment cycle, with green shoots already underway in various emerging sectors.”
Banks still dominate
Banks remain the dominant source of financing for non-financial entities. In FY26, bank non-food credit was about ₹29 trillion, or roughly 63% of the total capital mobilized by non-financial entities, according to the government document.
Other sources remained significantly smaller. Non-banking financial institutions (NBFCs), housing finance companies, and alternate investment funds (AIFs) contributed around ₹5 trillion, while equity issuances contributed approximately ₹5 trillion, corporate bonds about ₹3 trillion and foreign capital sources another ₹5 trillion, the document said.
The proposed framework is aimed at supplementing bank financing rather than replacing it. This is particularly relevant for infrastructure and industrial projects, where long gestation periods can make financing more difficult and tie up banks’ capital for longer.
“Diversifying sources of funding for investment projects is essential given the long gestation period. The total investment demand in the economy exceeds domestic savings. The gap is met via foreign capital which has become increasingly difficult to mobilize due to elevated global bond yields,” said Gaura Sen Gupta, chief economist, IDFC First Bank.
Widening the funding pool
The government sees a larger role for NBFCs, AIFs and specialized investment vehicles in financing niche sectors, emerging technologies and projects with risk profiles that fall outside conventional bank lending, a senior government official said.
Foreign capital—including external commercial borrowings (ECBs) and long-term institutional investment—can also supplement domestic resources where currency and refinancing risks are manageable, the official said.
A key challenge is the limited depth of the corporate debt market beyond the highest-rated borrowers.
“Currently the debt capital markets are shallow for non-triple A borrowers, with significant credit risk premium, especially for double AA-minus and below levels, and disproportionately high to the margin of increase in credit risk,” said Sanjay Agarwal, senior director, CareEdge Ratings.
“The financing risk for such borrower cohort gets concentrated with the banking system. This also increases the borrowing costs for such borrowers and induces rigidity. Along with this, the authorities should also promote institutions with skills and ability to finance greenfield manufacturing projects. This will lead to higher capex in private sector,” Agarwal said.
The proposed credit-enhancement mechanism could help address some of these constraints by improving the credit profile of projects and making their debt more attractive to institutional investors, while the RFQ mechanism is intended to improve price discovery.
“The challenge, however, is expected to be execution rather than a lack of capital. Translating project announcements into operational assets would require greater private-sector participation, faster implementation and a financing system capable of supporting larger and more complex investment requirements,” the official cited above said.